§ 3.5 p.m.
§ Baroness Elles rose to call attention to the role of Her Majesty's Government in promoting the British food and drink industry and thereby reducing the trade deficit in food and agricultural products; and to move for Papers.
§ The noble Baroness said: My Lords, in focusing attention today on the British food and drink industry —one of Britain's leading industries—and the role of Her Majesty's Government in promoting that industry and thereby reducing the trade gap in food and agricultural products, it is implicit that industry in general can only flourish under certain general macro-economic conditions: low inflation and low interest rates (which the Government have already achieved), a climate of confidence in the nation's economy to encourage investment, and a strong domestic market. Also crucial to long-term success for the industry is a stable currency; indeed, that is true for any industry. Membership of the exchange rate mechanism provided the discipline to reduce our inflation rate from 11 per cent. to 4 per cent. As we are no longer a member, and with a devaluation of over 17 per cent. since September last year, the Government must give confidence that they will do all possible to ensure a stable rate for sterling. A short-term devaluation of sterling will not help to reduce the trade deficit except in the very short term.
§ We are facing a period of change, and so is the industry. There is the single market from 1st January this year, with open borders for transport of goods; the opening of the Channel Tunnel in due course; the GATT negotiations, which are still in progress; the reform of the CAP; the removal of the MCAs; the delayed formation of the European Economic Area, although certain agricultural deals will come into force on 15th April regardless of the conclusion of those agreements; and the opening of new markets in central and eastern Europe as well as in other parts of the world as their economies grow, especially in the Far East. There is therefore every reason to hope that the food and drink industry can seize new opportunities for growth and expansion, given the necessary support and backing from the Government, and can meet that challenge now.
§ A main challenge is to reduce the trade deficit, which at the beginning of 1992 stood at an estimated £5.9 billion and has changed little over the past six years. In accordance with the monthly review of external trade statistics that I saw recently, at the end of 1992 imports rose by £10.8 billion but exports rose by £6.2 billion. So my figure now shows a £4.6 billion trade gap between exports and imports.
§ A significant factor in that gap is the large amount of imports—about half the deficit—not, as some might expect, simply of non-indigenous products from southern climates but of products indigenous to the United Kingdom from countries of northern Europe with a climate similar to our own, countries such as the Netherlands, Denmark, Eire and Belgium. The "export or die" motivation has entered into the 1063 industries of those countries and has led them to export far more than we have been able to export, certainly in proportion to the size of country.
§ There are basically two ways very simply to reduce the gap. First, one can import less, and, concurrently and secondly, one can export more. Importing less implies effort in import substitution, with an increase in home production to meet the demands now being met by imports. To export requires both effort and promotional skill to achieve successful sales on the continental and world markets. Those are very obvious comments, but we must ask how we reach that position.
§ The five leading retailers, including Sainsbury's and Marks and Spencer, both of whom I regard as the mainstays of democracy in this country, have made a major contribution to the high quality, consistency and availability of food at competitive prices, filling about 36 per cent. of retail sales. While they are experts, highly skilled at marketing their own brands, there are nevertheless other areas where the support of Her Majesty's Government is needed.
§ We can be proud of our food safety standards in Britain. The Food Safety Act is a guarantee of hygienic British food products. But the minute there is a food scare—they happen here as they do in every other country—the offending or suspected product is removed and replaced by an import from another country, which possibly applies lower safety standards than those in Britain. The problem is that the general level may be observed by country B in accordance with European Community legislation. But if we in Britain demand a higher standard we should seek to ensure that the standard is raised by amended European Community legislation. Complaining that other countries do not observe our standards does not cure the defect. It is equally important that enforcement measures are applied throughout all member states in accordance with the legislation in force.
§ More rigorous application of existing regulations and the additional costs of the regulations imposed on the industry also create imbalances between producers in different states. A recent study by Mr. Gosling of the Harper Adams Agricultural College shows, for instance, that in the poultry meat industry, with regard to the broiler section, specific extra costs for feed, inspection, waste disposal and health and safety amount to a total of £30.4 million per annum. Those additional costs cause a price differential of over 5p per broiler. That sounds minimal in large terms, but it is a wide margin in such a competitive industry. Will my noble friend study the problem to see how more equitable treatment can be reached so as to remove that considerable imbalance? I should tell the House that I have notified my noble friend of some of the questions I shall be asking during the course of the debate.
§ Each sector has its own problems and individual solutions. There is not an overall solution for each of the different sectors. The dairy sector, with a gap of around £460 million deficit in 1990, is at a disadvantage since the basic product, milk, with the 1064 current quota system, provides around 88 per cent. of Britain's needs, compared with France which is more than self-sufficient in the product.
§ Many leading companies, such as Unigate, are concentrating on a policy of import substitution, producing higher value added products. That policy was emphasised in a recent publication by Food from Britain which shows that the use of 100,000 litres of whole raw milk can vary in value from £18,000 if exported as whole milk powder to £103,000 if made into yoghurt and butter. That is a measure of the stark differential.
§ Changes in the dairy sector include the ending of the Milk Marketing Board, which will give the farmer alternatives as to how he sells his milk. While the successor to the Milk Marketing Board—Milk Marque—may absorb a high proportion of liquid milk, farmers will have the opportunity of possibly forming small co-operatives, as in France, or selling direct to the manufacturer or retailer.
§ At this point I warmly welcome the noble Baroness, Lady O'Cathain, who will be speaking in the debate. It is a subject on which she is an unrivalled expert. The noble Baroness informed me before I tabled the Motion that she would not be able to stay till the end. That is not her fault. If it is anybody's, it is mine.
§ Her Majesty's Government should give every encouragement to diversification of supply as well as to ensuring the hiving off of Dairy Crest from the Milk Marketing Board's successor. There are opportunities for British cheese exports which do not seem to have been realised in recent years. A more flexible market could meet that deficiency. I should perhaps say that, should any company decide to market a new cheese, first, it must ensure that it will last and be on a long-term basis and, secondly, it must not give it a name like Lymeswold. If one wants to export cheese the name should not contain a "Y" or a "W"; both those letters are generally missing from most of the European alphabet. It is not the best choice for export even if it is not "export or die".
§ Her Majesty's Government could also strive to seek changes for greater equity in the milk quota for Britain. We know that quotas are, in the long term, to be abolished—and they should be as we are in a single market. But at least alternatively member states should be able to transfer surpluses to countries which are not as self-sufficient. That may be unrealistic in the present climate but I hope that it will remain an objective of government.
§ The cereals sector is in positive balance of £160 million in 1991, with biscuits being particularly successful. One legitimate concern is the differentiation in VAT between member states. In Britain 17.5 per cent. is applied to all chocolate, sugar confectionery, chocolate-coated biscuits and other food products, whereas other European Community member states have varying rates of VAT on food. There is thus a considerable distortion in the market. That raises a general problem of policy on VAT, particularly in regard to food, but also it arises in the matter of whisky. The present system is slightly inequitable for those industries. I do not imagine that 1065 my noble friend will be able to reply in full to those comments because I know that at this time of the year he, like so many others, goes into purdah.
§ One sector where a major change could be achieved is in the fruit and vegetable sector, which together contributed an annual deficit of around £2.5 billion in 1991. In a letter to The Times on 23rd February this year the distinguished gastro-enterologist, Sir Francis Avery Jones, pointed out that that sum, or some of it, could be saved by heavily increased home growing, not only for the sake of the economy but also for the health of the nation.
The Government have a task to reintroduce nationally agreed nutritional standards for school meals applicable to all LEAs throughout the country. That duty was removed by the Education Act 1980 and there is no longer such an obligation. Development of vegetable and fruit growing could be encouraged with supplies to local outlets, organised through local marketing bodies, but co-ordinated through MAFF in the first place. That is perhaps a subject that might have been raised in the recent debate on the rural economy and would slot in quite well with some of the policies discussed at that time, particularly in relation to some of the organisations that exist in the sector. A greater supply of,
the vital protective antioxidant vitamins and minerals and other essential micronutrients",
would help to provide resistance to many contemporary diseases. That especially applies to coronary diseases, of which there is a high incidence in this country.
§ I should like to refer to the publication by the Caroline Walker Trust on nutritional guidelines for school meals. It is a valuable source of information in that regard. Indeed, to import thousands of tonnes of cabbages to Britain seems absurd, and to have to buy foreign apples because Cox's are not available is equally so. So that is a matter not only for the economy but also for health and employment in those rural areas which could develop that sector—and it could be a comparatively cheap investment.
§ From a traditional importer 20 years ago, with trade agreements of around £1 billion with New Zealand (butter and lamb) and the Caribbean (sugar) still in force, the British food industry has made remarkable advances in growth, efficiency and service to its customers. The highly competitive world of the food and drink industry demands high quality products, consistency of supply and the right price. All those elements are obtainable given the right economic and financial environment. If our own agricultural structures are not efficiently co-ordinated, there will be movement of manufacturers to other Community states—indeed, that has already happened—where there is a more favourable environment as to product quality, price and distribution systems. Furthermore, with the single market we will see an increase in continental firms setting up in the United Kingdom. After all, competition is the basis of the single market. But it must be recognised that investment, structural organisation and effective marketing of our British products on European and 1066 overseas markets are essential not only to reduce the trade deficit but also to provide a flourishing food and drink industry.
§ The promotion of our raw material and manufactured products is crucial for success to meet the fierce competition in the industry. Food From Britain does an excellent job, but perforce extremely limited, with only 17 staff for overseas promotion—those who serve overseas—and a limited budget. Is my noble friend able to indicate the comparable government funding for promotion in other European Community states? Is he able to tell the House whether there is any European Community funding for promotion of European Community products which would be available to the United Kingdom producers for sales to third countries?
§ I wonder whether Her Majesty's Government have examined the existence of overlap between the various bodies responsible for exporting; for example, the DTI, which spent around £167 million in exporting, MAFF, the British Overseas Trade Board and the British Food Export Council, which is part of the Food from Britain organisation. Marketing and promotion are the keys to success and no avenue should be overlooked. Catering particularly—the area where the tourist has first evidence of the quality and standard of British food, and, I would add, service—must not be ignored. After all, the first real impression of a country is when people visit a local restaurant or coffee bar and get the flavour of the month or of the country. The predilection for, especially, southern European food is surely the result of millions of British holidaymakers going to the Mediterranean and enjoying the local products. The image of brown Windsor soup and cabbage is not a sufficient inducement for foreigners to buy British food.
§ The industry is already successful in promoting its own brands, none more so than Scotch whisky and British biscuits. The optimum can be obtained and the trade deficit, if not removed, severely cut, but this must be achieved with close co-operation and partnership between government, producers, manufacturers, retailers and exporters. There are great opportunities for this industry. When we can go to a small town in France, Italy, or even further afield, and find a British delicatessen selling Scotch smoked salmon, Stilton, English cheddar, Welsh lamb and British bottled water, we shall be able to recognise some success. My Lords, I beg to move for Papers.
§ 3.21 p.m.
The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Earl Howe)
My Lords, I should like to thank my noble friend Lady Files for introducing this important debate about the British food and drink industry and the trade deficit in food and agricultural products. She has done so most ably, as we would all have expected her to, and I am certain that all speakers will wish to pick up the markers that she has laid down for us so pertinently. Her Motion specifically calls attention to the 1067 Government's role, and I welcome the opportunity at this point in the debate to tell the House what the Ministry of Agriculture has been doing.
It would be difficult to over-estimate the importance of the agriculture, horticulture, food and drink industries to the UK economy. They provide about 9 per cent. of GDP and give employment to some 3.6 million people. Our production, distribution and retail sectors are among the most efficient in the world and the range of wholesome, safe foods available to our consumers has never been greater. This expansion of choice, which enables us to walk into a supermarket or a restaurant anywhere in the country and select from a huge variety of high quality food and drink, is one of the most remarkable achievements of our economic system.
With this ever-increasing choice come opportunities as well as challenges for our industries. The large buyers are becoming increasingly competitive and demanding. British suppliers can respond to the challenge, and there are first-class examples in every sector. But the extent to which our industries do respond to the needs of the market, both home and abroad, is at the heart of this debate.
I do not want to quote a lot of statistics, but I should just like to put the food and drink trade gap into perspective. The United Kingdom has of course traditionally been a net importer of these items. Over the past 20 years, imports have grown to £13.4 billion in 1992, but exports have grown faster and now stand at £7.5 billion, excluding trade in live animals. In real terms the trade gap at £5.9 billion is less than it was 20 years ago. Nevertheless the Government accept that further improvement is needed.
Your Lordships may know that in 1991 my colleague David Curry carried out a ministerial review of the factors underlying the trade gap. He consulted producers, manufacturers, wholesalers, retailers, importers, consumers and others to hear at first hand how the market was operating and to see what the Government could do to help. The review highlighted areas where the Government were able to take action, and over the intervening period all of the principal recommendations have been acted upon.
The review drew a number of significant conclusions. First, it highlighted the fact that at the primary level, budgetary constraints and CAP reform meant that producers would have to look much more to the market for their future income and prosperity than to the classical support measures. This in turn meant that they would have to gear themselves up to meet quality specifications set by the retailers and other large buyers. The long tradition of individualism needed to be redirected—where appropriate—to-wards collaborative relationships with other producers and with buyers. Traditional marketing structures were not always relevant to modern circumstances, and some reappraisal was needed.
Manufacturers and processors were particularly affected by the European single market, which was likely to have a major effect in freeing up trade. Although there were striking examples of export success, some companies did not give it a high enough 1068 priority. Companies were tending to establish large single plants to serve the whole of the Community, instead of the previous pattern of a plant in every country. For all these reasons, it was clear that the food industry needed to think European and to treat the single market as its home market.
The big retailers, particularly the food retailers, had become formidably efficient, and had highly sophisticated sourcing and distribution arrangements. Their business demanded reliable suppliers, who would give a good level of service. They needed large volumes of consistent produce. And, although they would negotiate hard on price, this was not usually their most important criterion.
Last but not least, the review concluded that the Government needed to play a supportive and facilitating role, to take account of trade considerations when deciding or amending policies, and to continue working to reduce burdens on industry.
So how is the gap to be narrowed? Naturally any improvement, as my noble friend pointed out, has to take the form of import substitution or of increased exports. The industry needs to work at both. But it has to be recognised that the scope for import substitution is by its very nature finite, and that export development is at least as important, if not more so. Primary producers and processors both need to find new markets, in the single market and beyond. In many respects, not least the advent of the single market, and our currently favourable exchange rate, the opportunities for exporting have never been better.
So what have the Government been doing? The first thing we did was to set up a small market task force in the Ministry to make contact with all the key sectors and to act as a catalyst for action, in both industry and government. The Prime Minister has chaired two seminars with industry leaders to promote discussion and collaboration between all the sectors. Valuable initiatives have followed, including the appointment of David Naish to co-ordinate follow-up action.
In April last year we launched the group marketing grant to encourage producers to collaborate with one another and with others in the food production and marketing chain. We can give up to £107,000 per group to help with key management costs. Take-up has been encouraging, with 55 applications and 32 approvals in the first 11 months in all sectors from livestock to vegetables to cereals. In the light of experience to date, we are currently simplifying some of the rules to make the scheme easier to use.
We devised the idea of a trading code to give small suppliers the confidence to deal with large buyers. This should help to get over the reluctance that a lot of farmers have to deal with big companies. The idea has been widely welcomed and it is now being developed by the Institute of Grocery Distribution. We have encouraged retailers to declare country of origin on own-label goods. I am pleased that they have responded positively to this. We have taken two initiatives to encourage exporting. Food from Britain, the national food promotion body, is being reviewed by an independent consultant, Dennis Stevenson, to 1069 ensure that its range of functions best meets the industry's needs. His recommendations are due shortly.
Secondly, my right honourable friend the Minister recently launched an export initiative in which 150 companies from all quarters of the primary, processing and ancillary industries joined in a series of ministerial seminars. The object was to get them to think more seriously about exporting, and for them to tell us how MAFF could help. We are now digesting the suggestions they have made.
In this context, I should like to emphasise the key role of the food manufacturing and processing industry. This very diverse sector employs directly half a million people and contributes 2.6 per cent. of GDP. There are 10,000 companies ranging from the small family business to giant multinationals such as Unilever. Scotch whisky, with exports worth £1.9 billion, is a world beater: it is the most internationally-traded spirit drink.
Now, as we see it, this food and drink industry is the pivot on which all the other sectors depend—farmers and growers, retailers, caterers and eventually the consumer. If it is prospering, the others will benefit, too. We are fortunate in having dynamic and innovative companies. Sectors as diverse as confectionery, tea, breakfast cereals and petfoods are showing the way with new products and new markets.
In order that the food industry and other businesses should flourish, it is essential that the Government should moderate the regulatory burden they impose. I shall have more to say on this when I come to respond at the end of the debate. However, following my right honourable friend the Prime Minister's deregulation seminar last month, we have made clear that no further regulations will be put before Parliament unless the compliance cost has first been spelt out to business. Several task forces of businessmen will be scrutinising regulations in all sectors, including food, drink and agriculture. We are scrutinising the way we implement EC law at home, and will be pressing the Community to operate a much stricter deregulation policy in Brussels.
We are talking today about industries which are important to the well-being of both the consumer and the national economy. The onus is on them to reconquer the domestic market and, even more important, to develop their sales overseas. The Government believe that their policies will promote their success in both directions. And we are pledged to continue that effort.
§ 3.32 p.m.
§ Lord Carter
My Lords, the House will be very grateful to the noble Baroness, Lady Elles, for giving us the chance to debate this very important subject. In opening the debate on this side of the House, I shall deal with the promotional and agricultural aspects of the topic and my noble friend Lord Peston, when he winds up, will deal with the macro-economic aspects and particularly the effects on the balance of payments.
We say at the outset that the trade gap in food and drink is central to the problem, with 63 per cent. of the 1070 deficit accounted for by indigenous produce. We can all understand why we spend nearly £200 million on importing bananas; it is hard to understand why we have to spend the same amount on importing apples. The situation is further bedevilled by the workings of the common agricultural policy, that lunatic construction which has been visited on the European farmer, consumer and taxpayer. As has been well pointed out, it is not "common" because all the member states spend all their time attempting to divert it to their own benefit. It is certainly not "agricultural". If it is anything, it is "social". I am not sure that even its best friend would describe it as a "policy".
For example, the United Kingdom is forced to be a net importer of dairy products and sugar as the result of the restriction on home production through quotas. However, the fact that the UK is now a major exporter of cereals—the seventh largest in the world I believe—is largely if not entirely due to the export and restitution system in the CAP.
We are continually being told that the proposed GATT reforms are consistent with the MacSharry reforms of the CAP although the Minister's right honourable friend, the Minister for Agriculture, Mr. Gummer, seems to be uncharacteristically coy in producing the detailed figures to back up that assertion. Can the Minister say whether the Government have yet made any estimate of the effect on the trade gap in food and drink if GATT and MacSharry are implemented in full?
There has long been an ambivalence in governments of all parties towards financial support for the promotion of UK food and drink. I say that on the whole Labour governments in the past have been more interventionist. Indeed, if it were not now a dirty word, I would say that they have been more corporatist. In the 1960s there was AM DEC which was the Agricultural Marketing and Development Executive. There was then the Central Council for Agricultural and Horticultural Co-operation. That was a body on which I had the honour to serve for a number of years with the noble Earl, Lord Selborne. The Agriculture Act 1967 set up the Home Grown Cereals Authority and the Meat and Livestock Commission. Indeed it was the Attlee government which in 1947 passed the Industrial Organisation and Development Act which has been used from time to time for the development of agricultural marketing.
The development council story is quite an interesting one as it illustrates the ambivalence of Conservative governments in recent years to the promotion of agricultural marketing. As noble Lords will know, if a development council is set up with the support of producers or of an industry, it is allowed to raise its funds by statutory levy on all producers in that industry. Indeed, in the early 1970s I was involved in working up the proposals for BAMDO (the British Agricultural and Marketing Development Organisation) which was to be part-funded by government and part by producers. The Heath Government rejected the proposals but the process of negotiation eventually led to the setting up of Food from Britain.
1071 I have always supported the idea of development councils. It seems to me that they are a sensible way to promote agricultural marketing. But now the wheel has turned full circle, if indeed a U-turn can be described as a full circle. We are now likely to have a milk development council and a potato development council as the result of the winding up of the milk marketing boards and the Potato Marketing Board. I would like to congratulate the Government on their new and pragmatic approach to this matter.
It has always seemed to me to be entirely reasonable that if a majority of agricultural producers on a poll support the setting up of a development council, the Government should then give power to the council by statute to raise a levy towards its activities. If all producers benefit from the activities, then they all should pay. The ambivalence of government towards the funding with government money of promotional and development activities is well illustrated by the comparative funding of Food from Britain, the CMA in West Germany and SOPEXA in France which are three equivalent organisations. It has already been touched on by the noble Baroness. In 1991 the number of employees with the three organisations were: Food from Britain, 63; the CMA, 160; and SOPEXA, 254. Their budgets for 1991 were as follows: Food from Britain was £7.5 million, of which £4.5 million was from the Government; the CMA budget was £45 million, which was all raised by parafiscal levies; and SOPEXA was £51 million, with almost half of that (£27 million) from the French Government.
I am sure that the Minister is aware that the funding of Food from Britain is now on the basis of £1 of government funds to £3 of industry funds. The ratio is 1:3. I know that the department is being pressed to change that ratio to 1:1, which would in fact increase the Government's funding from £4 million to £6 million. That is a small sum in terms of the total turnover of the food and drink industry which we have been discussing. I ask the Minister whether that is a possibility.
The Government's activity—or lack of it—in promoting UK food and drink is not the only way in which the Government can affect the comparative advantage of UK producers, manufacturers and retailers. We all know of what one would describe as the differential enthusiasm between member states in implementing European legislation and regulations which can give a marked cost advantage to those member states who are the most laggardly in implementation. I quote as examples the effect of the meat hygiene regulations on small slaughterhouses; the effect of food safety regulations generally; and the taxation differences between wines and spirits when Scotch whisky is one of the major contributors to our balance of payments.
Today we had a good example in a news release from the department of the other way in which the matter can be dealt with. There has been a study of the review of food labelling in catering establishments. I 1072 congratulate the Government. Having looked at all the proposals, the Food Advisory Committee recommended,that caterers should do more to respond to the needs of their customers, but concluded that it would not be appropriate to introduce legislation to this effect. The Government has accepted the FAC's conclusion".There are many other areas where we wish that they would do the same.
Food safety is a prime example of an area where government activity can in fact be counter-productive. The salmonella-in-eggs saga is a prime example of ill-thought-out and panicky reaction by government leading to a substantial increase of imports with no possibility of the UK Government having in fact any control over the health status of those imports. We all know that food safety scares make good copy. They bring out every born-again food campaigner, loony-tune academic, publicity-seeking politician and sensationalising journalist in the business.
After slaughtering 3.25 million laying hens and spending tens of millions of pounds of public money, the relevant strain of salmonella food poisoning has increased by 82 per cent. Do the Government now wish that they had taken the advice of those of us—and I was one—who said at the time that the slaughter policy would not work? Indeed, the Government have now had to admit that cross-contamination in the kitchen and poor hygiene are the main contributors to the increase in food poisoning. Another factor is foreign travel. We know that the incidence of salmonella food poisoning fell substantially during the Gulf War because there were fewer visitors from overseas bringing the salmonella in and fewer British nationals bringing it back.
I have spent a little time on the salmonella story because, apart from the close personal involvement of my noble friend Lord Peston and myself, it illustrates very well the need for an independent food standards agency to be responsible for the quality and safety of the nation's food, both home-grown and imported. It is my party's policy to establish such an agency.
I have to say, with great regret, that following the scares over salmonella, BSE and listeria, if the Ministry of Agriculture, Fisheries and Food has not lost the confidence of the consuming public, that confidence has certainly been substantially eroded. In my view and in that of my colleagues, only an independent food standards agency could restore that confidence.
So, what has to be done? Well, a start has been made. Obviously we welcome the Government's initiative on the marketing grant for producer groups, whether co-operative or otherwise. Can the Minister tell us the budget for those grants? How much is genuinely new money and how much of the money has been recycled internally from other activities? I repeat the question that was asked by the noble Baroness when she opened the debate: how much, if any, EC funding is available for UK food promotion?
There is the welcome initiative of the Strathclyde Food project, which is a major food industry initiative to boost the sales of British-produced food within the UK and abroad. I know that the noble Earl, Lord Selborne, serves on that project and we look forward 1073 to hearing him describe its activities. The most welcome feature of the Strathclyde project is the "bottom-up" rather than the "top-down" approach that it is adopting. It is looking at particular commodities, examining their sourcing and then considering exactly how to source more of that commodity from home-grown supplies.
So much of our approach to the improvement of UK food and drink promotion and marketing in the past has been based on what I would describe as the "blueprint" approach—deciding beforehand on a particular bureaucratic structure and then attempting to see how commodity marketing could be fitted into that preconceived structure. I have always felt that the correct approach is to examine the marketing characteristics of each commodity and then to devise a structure which fits those characteristics. Perhaps I may use oilseed rape and cereals—the two products with which I have had a lot to do—as brief examples. I have been involved for some 26 years in the marketing of oilseed rape as a director of a farmers' co-operative which operates nationally and has a substantial share of the UK oilseeds market. Oilseed rape is a pure industrial crop. One grows it, puts it on a lorry and moves it to a very few outlets—either to a crushing mill or to a port for export. In those circumstances, a single, national, producers' cooperative makes a lot of sense.
It would be very difficult to reproduce the same system for cereals. We know that they can be used as feed on the farm, sold for feeding to other farms, sold for processing or for export and, above all, they can be sold into many different markets for malting, milling and feed. With cereals, it makes much more sense to have more localised arrangements which suit the particular characteristics of the commodity.
Cereals also provide a good example of how a well-meaning but, with hindsight, a mistaken policy on the part of the Government—and this was a Labour Government—can affect efficient marketing. After the war, one of the many Anglo-American productivity teams which visited America looked at grain storage. Its recommendations on its return led to the policy of the substantial grant-aiding of on-the-farm grain storage. We are often told that French cereal marketing can be held up as an example of good marketing, but much of that is due to the simple fact that most French grain is stored in central co-op stores and not on the farm, thus making it easier to control its marketing.
I well remember when I was a member of the Central Council for Agricultural and Horticultural Co-operation that the economics of grant-aiding the central grain stores was very much affected by the residual value of on-the-farm grain stores where a substantial proportion of the cost had been grant-aided anyway by direct grants and through taxation. The farming company in which I am involved has a substantial grain storage capacity in silos that were built in the 1950s. There would be no financial advantage to us in investing in central storage, although that would appear to assist with orderly grain marketing.
If we are to make progress in the promotion of UK 1074 food and drink and thus reduce the trade gap, the Government must decide on a coherent policy and stick to it. I have already described the inconsistency of the Government's policy towards development councils. Another example is the Government's attitude towards the financing of producer groups. There was substantial grant-aid available for the formation of agricultural co-operatives, but that was wound down and eventually ended. Within two years of its demise, the Government announced a grant-aid system for producer groups, which did not have to be co-operative in character. Now, within a few years of frowning on producer groupings through co-operative systems—the Minister said so at the time—the Government are apparently prepared to welcome a single, voluntary, producers' co-operative which would be set up under the Industrial and Provident Societies Act to replace the Milk Marketing Board of England and Wales. It is just a little hard to discern a coherent thread of a policy through all this. I suppose that it all comes down to the fact that one man's U-turn is another man's pragmatism.
We have a situation where the UK food industry is characterised by independent (some would say "cussed") farmers who apparently are not yet persuaded of the advantage of collective marketing action. Whenever I speak to an audience of farmers, I remind them that the consumer is not just our best customer, but our only customer. But it is sometimes hard to get that over to farmers. We have a network of manufacturers and processors who, through their concentration on the UK market, have tended to be less innovative than their overseas competitors (particularly their European competitors) who are much more geared towards export markets.
In addition, our very powerful multiple retailers now have an enormous influence on the marketing of food. The multiple retailers in the UK have 83 per cent. of the retail grocery trade in certain key markets. That compares with 70 per cent. in West Germany and 64 per cent. in France. The five largest UK grocers —Sainsbury, Tesco, Argyll, Asda and Gateway—have 60 per cent. of grocery retailing, compared with the five largest in France which have 35 per cent. It is no accident that the profit margins of the major UK multiples are the envy of their European competitors.
To conclude, it is clear that, although there are now some welcome signs of marketing initiatives coming from the Government, the National Farmers Union and the food industry itself, there is still a long way to go. The Government have a major responsibility in this—not just through the funding of Food from Britain and the marketing grants for producer groups, but also through such matters as food safety legislation and regulations generally. One could almost hear the word "corporatism" in the Minister's opening speech (with the involvement of industry and groups of businessmen acting as advisers, which is a very good thing). But from all that the Minister said, it seems that the Government have now reversed the "hands off" policy of leaving it all to the market, which was characterised in the Thatcher Administration. We look forward to the Minister's 1075 reply at the end of the debate when I am sure he will have the facts and the figures to show just how "hands on" the Government are prepared to be.
§ 3.48 p.m.
§ Baroness O'Cathain
My Lords, I greatly welcome the initiative shown by the noble Baroness, Lady Elles, in calling attention to the role of Her Majesty's Government in promoting the British food and drink industry and thereby reducing the trade deficit in food and agricultural products.
I am very sorry that a long-standing engagement may preclude me from staying to the end of the debate and I apologise, in advance, to the House. I shall read with great interest all the contributions to this debate, particularly the wind-up speech by the Minister. I am sure that during the course of this debate the Government will receive some valuable suggestions from your Lordships.
The whole subject of the food trade gap has concerned me for almost 14 years. I was appointed a member of a team of marketing advisers by the noble Lord, Lord Walker, at the time that he was the Minister for Agriculture, Fisheries and Food. I remember the sense of amazement that I felt when I discovered that we were importing so much food that we could grow ourselves; import pineapples, yes, but surely not potatoes!
Sadly, although there has been some spasmodic progress in both export creation and import substitution, there remains a huge trade gap, as has already been identified—a significant part of which could be reduced. It is a crying shame that the food and drink sector remains the largest industry contributor to the national current account deficit.
The Government are aware of that, and to their credit they are constantly striving to encourage exports. In January of this year the latest effort by the Government to chivvy the industry took the form of a food marketing seminar in 10 Downing Street, chaired by the Prime Minister. Subsequent to that seminar, yet another investigation was started and is in progress, as we have already been told. Always the optimist, I wish the investigation well; I look forward to its recommendations and I banish from my mind the unworthy thought of, "Oh dear! here we go again."
The figures tell the story, and have already been mentioned by the noble Baroness, Lady Elles, and by the Minister: food and drink exports, £7.5 billion; imports, £13.4 billion; deficit, £5.9 billion. As has been said, the food trade gap can be reduced by export creation, import substitution or a combination of both.
In a debate one cannot hope to cover all the ground one might wish, so I shall concentrate upon the subject of import substitution, with only a passing reference to exports. I must say that I am in mild disagreement with the Minister when he says that exports are more important than import substitution. The subject of exports has been greatly and expertly dealt with by the noble Baroness; but I should not like it to be assumed that I have no faith in the industry's ability to export. 1076 However, I feel that the enormousness of the task facing the industry is such that effort should be expended in those areas where the possibility of success is greater, and the scale of possible success is more achievable. That is why I believe that the major effort should be directed towards import substitution.
There is a subsidiary point which steers me towards import substitution rather than export creation; namely, it has always been a tenet of international trade that a prerequisite for successful exporting is a strong home base. A domestic market which has imports of indigenous products to the tune of some £3.7 billion per annum does not strike me as having a strong home base.
It is important that we tackle that £3.7 billion which we currently spend on imports of food that we could so easily produce ourselves in the UK. It is important for at least four major reasons. First, as a consumer I believe that the fresher the food we can buy, the better it is. It is obvious that food supplied from our own farms and processing plants—distributed through the speedy distribution chain, that is the envy of other countries—must be fresher than food imported from hundreds of miles away on the European mainland, or even from New Zealand. I sometimes cannot believe my ears when I hear of London restaurant owners going to Rungis, Paris, twice a week to buy food that could be produced here. I say "could" advisedly. I suspect that the reasons they go to Rungis is that they cannot get what they want here, not that we cannot produce it, rather that we cannot be bothered to produce it.
Secondly, as a director of a grocery retail and distribution company I know that it should be much easier to source more product from the home market. Just a simple analysis of the hassle factor involved in communications in a foreign tongue proves that—not to mention the transport logistics with the Channel Tunnel not yet operative.
Thirdly, as someone who has an abiding interest in the future of British agriculture and in the long-term viability of British farmers, not to mention the need to ensure that there is no further depopulation of the rural areas, I believe that it is imperative that a new sense of consumer awareness, and willingness to produce what the customer really wants, is engendered.
Finally, as a citizen and taxpayer, I want to see this country becoming stronger economically and not incurring a huge, unnecessary trade imbalance in food, which will only exacerbate the unemployment situation if we continue to be a high indigenous food importer.
It goes without saying that the food industry in this country has been very successful. The agricultural industry has also been highly successful. Indeed, it is the envy of many other agricultural countries; but something is missing. Production is first class; husbandry second to none. So why is there this great food trade gap? Putting it simply, the agricultural and food industries suffer from inertia when it comes to marketing, lack of innovation and the apparent inability (in the case of farmers) to be members of co-operatives.
1077 The agricultural and food sectors are still production driven: "You sell what I produce"; and, even worse, "You purchase what I produce." The statements should of course be, "You tell us what you want to purchase and we'll produce it." New product development lags a long way behind that in other countries—just look at the supermarket shelves, look at the dairy cabinet. Where do all the exciting new products come from? The labels tell the story: Germany, France, the Netherlands, Denmark and elsewhere.
Of course it is so much easier to produce commodity products like bulk butter, bulk cheddar cheese and one or two varieties of potato, just as it was easier to produce fat pigs before the Danes stole our market by producing lean bacon. Today's consumer demands variety in food products. His or her palate has been developed by trips abroad, ethnic fast food, and an ever-increasing willingness to experiment with new foods, both purchasing them for home preparation or eating out.
Food from Britain was set up in 1983, and has achieved some remarkable success. The Government have encouraged increased product and process innovation and given large grants to co-operatives. Yet imports of indigenous food remain unacceptably high. I have heard it suggested that there is a move afoot to set up yet another body to co-ordinate agri-food marketing activities. I ask the Minister to think twice, three and many more times before succumbing to that suggestion. In my view, part of the problem which led to us giving our market to overseas suppliers on a plate was that there were too many bodies all thinking that they had responsibility for special bits of the whole, and nobody picked up the responsibility for the whole. The whole important, very important, subject needs consolidation, a firm direction and guidance from the Government.
Food from Britain was burdened from the start by having to have representatives from very many sectors on its council. As a result, the decision process was hampered; the programmes were the product of consensus and consequently reflected the lowest common denominator, rather than the highest common factor. I sincerely hope that the review now being undertaken will result in recommendations to strengthen Food from Britain, to encourage it to be much more adventurous, and to remove from its neck the yoke of burdensome bureaucracy.
Perhaps the funding of Food from Britain should be put on a different basis. Naturally, if a farmers' organisation—for example, the MMB—puts up a significant sum for promotion, it wishes to see that money spent on the products of its area; namely, in the case of the MMB, on milk, cheese, butter or other dairy products. Such farmers' organisations will jealously guard and monitor the "spend" and ensure that other product areas do not get a slice of what they deem to be "their" money. That only shifts the responsibility for the marketing onto Food from Britain for their own product areas, and does little to help the overall improvement in the sales of all home-produced food.
1078 I have never been an advocate of throwing Government money at those who can and should help themselves. But I fear that by insisting that the food sector part-fund the promotion of British food through Food from Britain we will never have the same success as do food promotion agencies in other European countries. If I were the Minister I would be sorely tempted to make a case to the Treasury to allocate a sum of, let us say, £12 million per annum to Food from Britain for the next three years to see whether or not that can make a significant dent in the import of indigenous food. With that sort of funding, coupled with an unshackling from vested interests, I am sure a big impact could be made and £12 million per annum is not a vast sum compared with some of the amounts we hear about in this House. Over the past three years Government funding for FFB has been at an average of £5 million per annum. We are talking only of an additional £20 million or thereabouts.
I know that that suggestion will not be welcomed by the Treasury or the farmers' organisations. The NFU has done a powerful job for farmers in the past. Indeed, long before I joined the agricultural and food sectors, I had heard about the most effective lobbying organisation in the country; namely, the NFU. But just because it has been so successful does not necessarily mean that it is the best body with which to entrust the marketing of British food. The NFU has also the problem of trying to satisfy competing interests: should lamb be promoted? The pig farmers would probably say no. Should we vigorously promote low-fat milks, although that causes a problem for the disposal of the residual cream? Those are just two examples. I firmly believe that the farmers are not the best people to see the whole picture. They are excellent at producing high-quality agricultural products but, despite valiant efforts, are not marketing experts.
Food from Britain needs to stimulate and pump prime new product development. It needs to get even closer to the major retailers but not in a committee ambience. The noble Lord, Lord Carter, referred to the University of Strathclyde food project which has brought together representatives from all parts of the British food chain, farmers, food processors and retailers, to work together to develop opportunities for British food supplies. It is a most worthy scheme, but I have to say that, unlike the noble Lord, my heart sank when I saw that there is a council consisting of chairmen of four major plcs, a joint managing director of one of the large supermarket chains, the president of the NFU and the noble Earl, Lord Selborne. Those are all extremely busy men, and all have so many other activities to which they must devote their attention, how can they spend any length of time on this project? Even the logistics of trying to get them all together for a meeting must be the diary secretary's nightmare of all time.
Beneath them is a steering group, composed of seven men—and, I am glad to say, women—and again all are very busy people. They are very senior in their own organisations, be they employed in food companies or in the NFU and ADAS. And beneath 1079 them again are seven working parties, one each for major product areas including soft fruit, bacon, hams and red meat and salads.
My fear is that by the time it takes for the ideas generated by the working parties to percolate through to the council those same ideas could be significantly watered down or else have missed the "window of opportunity". We need a fleet of foot, energetic, single-minded organisation with creativity and flair to tackle the big opportunity to bridge the food trade gap. I hope that the Minister has listened sympathetically to my pleas.
§ 4.1 p.m.
§ The Earl of Selborne
My Lords, I too thank my noble friend Lady Elles for initiating the debate. I congratulate her on having been able to arrange it when there are so many experts in the House. We were reminded that the noble Baroness, Lady O'Cathain, was one of the five marketeers employed by my noble friend Lord Walker of Worcester. Many years ago the noble Lord, Lord Carter, was on the Central Council for Agricultural and Horticultural Co-operation. There is, therefore, a sense of déjà vu. Many of us have sat on committees and have become fossilised in our thinking, as the noble Baroness, Lady O'Cathain, suggests we are likely to do in respect of the Strathclyde project.
I must explain that I am a producer and a farmer. I grow arable crops in the supported sector; I produce milk in the controlled sector; and I grow crops for the open market in horticulture. Of that range of crops, I have always felt instinctively more comfortable in the horticulture sector because the opportunity for government or for the European Community to change the rules and to move the goal posts is greatly reduced.
I am not a marketing expert; I am a producer. The conclusion that I draw from the efforts of those who have tried to help with various marketing initiatives is that if there were government intervention, which was always needed to help the marketing of agricultural and food products, there would be no problem. Surely of all the sectors in industry there has during the past 40 or 50 years been more government intervention in the agricultural sector than in any other. The marketing boards of the 1930s were probably worthy and important in those depressed times. They are still with us but perhaps only for a short time. There were the deficiency payments of the 1950s, the move into the Community with the CAP-guaranteed prices and now, what is the most horrifying development of all, there is the move to supply control through the common agricultural policy. We had that in the 1980s with milk quotas and now in the 1990s we see supply control in beef, sheep, and arable area payments, variable crops and the like.
All those measures are intended by the Council of Ministers and by national governments to secure farm incomes and the rural infrastructure. The only conclusion that one can draw is that by shoring up support in that way a socio-economic effect can be achieved. However, often the EC puts itself at a 1080 disadvantage. The implications of GATT and of the agreement between the EC and the United States are that we shall be more vulnerable to imports instead of being in a more advantageous position. It is clear that the French and the Germans are right, as are the British producers who do not shout so loudly about it. They are right to point out that liberalised trade means that Canadians will be able to export milk products to this country in a way that was previously not possible. The New Zealanders and Australians have done a great deal to liberalise their trade and they see enormous advantages.
Yet we have a common agricultural policy which is becoming more and more entrenched in supply control. It is damaging to European agriculture and, in the context of this debate, it is damaging to United Kingdom agriculture. It is not as damaging as modulation would have been; those were the aspects of the reformed common agricultural policy which gave support to smaller farms rather than to larger farms. That would have been blatant discrimination against our country where infrastructure is so much larger.
Nevertheless, in taking the wider view we shall, if we continue with supply control measures through the common agricultural policy, drive ourselves into a more vulnerable situation in our own markets and in the export markets, whether we look at ourselves as Europeans or as UK farmers. We have had experience of milk quotas for almost 10 years and it has become impossible to imagine any Minister proposing to abolish them. They have become an important part of the balance sheet of the individual farm business; yet they are stifling production. It is impossible for a young person to enter the milk industry, and while quotas exist we can provide only 80 per cent. of our own home market. When in our wisdom we agreed to milk quotas we effectively gave the Irish and others 20 per cent. of our share of the market. It is no good, therefore, trying to do anything about that particular trade deficit; we have institutionalised the trade deficit in that area.
I am bitterly opposed to all quotas. I speak from a position of some authority because at one time I was chairman of the Hops Marketing Board. If anyone worked quotas to advantage it was the hop growers. I can also claim that while I was on the board it abolished quotas. I refer your Lordships to a report which was published two years ago, which is before the reform proposals for the common agricultural policy were circulated by Mr. MacSharry. It is a report of the European Communities Committee of July 1991 and is headed Development and Future of the Common Agricultural Policy. I sat as a committee member under the chairmanship of my noble friend Lord Middleton. The report wisely states:Quotas arc not in the interests of consumers, manufacturers or the agricultural industry and should not he extended to any new commodity".We all know that that is precisely what has happened.
As European producers, we do not have the courage to take what ultimately is the only safe long-term supply control measure; that is, ultimately to use the pricing system. That is not to say that one must not pay compensation. If one intervenes so 1081 massively over so long a period, clearly one will drive an industry into a dependent culture. One will, of course, have difficulty in moving it closer to world market prices. I entirely accept that we must do that progressively. However, I am afraid that if we believe that quotas are the long-term solution we are wasting our time even in initiating this debate.
We in the United Kingdom are operating from a position of strength. My noble friend Lord Howe was right to point out that we have something of a success story on our hands. We have a number of strengths which need to be repeated: we are good at our jobs as producers and retailers—we are probably among the best in the world; we have a strong manufacturing sector; we have a good infrastructure throughout the distribution chain; and, of course, we have natural advantages working in our favour. Our country is relatively small-scale as regards transport and the heavy concentrations of population make the distribution of fresh produce simpler. We still have a good research and development base, in spite of considerable changes in national policy in the near-market sector. Nevertheless, it is a strong base. I suggest that our strong food safety record and our ability to produce high-quality food works in our favour.
That may seem surprising to some, particularly in view of the remarks made by the noble Lord, Lord Carter, about the need for a food safety agency. I wish that I could share his enthusiasm for that quango or organisation. The idea of yet another tier of regulation and bureaucracy fills me with dread. I do not believe that it would do more than focus further attention in a way which will rebound to our disadvantage. I do not believe that we need any regulation other than that provided by the Ministry of Agriculture whose job it is to ensure that we maintain our high safety standards.
If we are looking at the matter on an industrial basis and looking to see where our strengths and weaknesses lie, our weaknesses are that we do not co-ordinate very well along the chain between the producer at one end and the customer at the other, with the manufacturers and retailers in the middle. I rather doubt that formal co-operation is the answer, despite my experience of the Central Council for Agricultural and Horticultural Co-operation.
Another weakness which is self-evident is that, with the cocoon of marketing organisations, marketing boards and so on, producers have never had much incentive to get close to their ultimate customers. Where that has been done—for example in horticulture, pigs and poultry—it has worked very successfully. I do not believe that it is a "hassle factor", as the noble Baroness, Lady O'Cathain suggests. I believe that we are all entrepreneurial if there is the encouragement or right to be so. If there is a marketing board, you are not allowed to do anything with your milk except sell it through a marketing board. As producers, I do not believe that we need lectures on avoiding the hassle factor.
Bureaucracy is a killer. As small businessmen, we are all aware of that. It is totally out of sympathy with our culture. Most farmers now operate their farm 1082 office from a tractor cab. That may seem a strange concept but if you have no help, that is what you must do. You have a telephone and hope that you can minimise the paper work. I do not believe that anyone in Whitehall has stopped to think of the implications. For example, as regards the requirements of beef passports, there is a whole wodge of paper for each individual animal. That makes one realise how far out of sympathy the Government have become with the needs of the industry.
I was glad to hear my noble friend say that when he winds up, he will tell us how the Government propose to moderate the regulatory burden. We shall all be delighted to hear what he has to say. There are opportunities for co-ordination, if not co-operation. I believe that the Strathclyde initiative bears further inspection. The noble Baroness, Lady O'Cathain, is quite right to point out that if we have committees full of the great and the worthy at the top, including myself, we will get nothing whatever from them. However, the "bottom-up" approach works rather better.
§ Baroness O'Cathain
My Lords, I am grateful to the noble Earl for giving way. I did not say that. I said that the members of those committees are all very busy people and, as a result, find it difficult even to meet together. I did not say that such people do not contribute anything. I have the greatest possible respect for the noble Earl and I thank him for giving way.
§ The Earl of Selborne
My Lords, the noble Baroness was right the first time. As a council we do very little and we must come clean about that. However, we encourage the "bottom-up" approach. I mentioned earlier that I am involved in horticulture and I chair the top fruit working group within that sector whose members are involved in the production, processing and manufacturing. The noble Lord, Lord Carter, and my noble friend Lady Elles referred to the strange fact that we are not able to meet our own market demand for varieties such as Cox's apples. That seems to me to be a project which the Strathclyde initiative can helpfully look at. Indeed, it is doing so.
Perhaps I may give your Lordships a flavour of what I mean from the worm's eye view to demonstrate the practical problems which we face. Why is it that an apple grower like me does not grow more apples if there is a demand which is not being met? In practice, the reason is that often you can sell only a proportion of your crop to the supermarkets and so on. Their specification tends to be rather high, for good retail reasons. However, if those outlets could be persuaded that a Cox's apple is not naturally large, which it is not, but a smaller apple and that the flavour of smaller apples is rather better, you would suddenly increase your potential of putting apples into the first grade and onto the supermarket shelves by a significant factor. I fear that I am becoming rather technical; but if I tell your Lordships that I can sell my 65 millimetre apples for double the price of 60 millimetre apples you will recognise how significant those figures are.
Even the best growers are bound to have a proportion of second or even third grade apples which 1083 should not be put onto the retail market because that would do little for the reputation of British Cox's. Equally, those apples make perfectly good juice or are suitable for manufacturing. It is not the producers who provide that manufacturing capacity. They are no better at that than they are at serving on committees. Therefore, the requirement is to try to persuade others in the food sector to complement the initiative and investment of the producers.
I believe that the Strathclyde initiative has demonstrated that, rather than relying on government help and handouts from Food from Britain and everyone else, the sector is trying to get together from top to bottom, stop complaining about the exorbitant demands made on one sector or another and work out how to complement each other's efforts. It is early days and I am sure that the noble Baroness will look carefully at the results of the reports. I believe that that is a sensible approach, not because of the people who are involved on the committees but because of the number of practical people involved at the working level.
While the terms of today's Motion invite us to draw attention to the role of Her Majesty's Government, at the end of the day the industry must sort out its own objectives. We can be helped by the Government if they free up the market, abolish quotas and instil some sense in the long term into the common agricultural policy. They will certainly help if they can cut down the bureaucracy. Above all, I agree with the noble Baroness that we need no more umbrella organisations; we need to make better use of the facilities which we already have.
§ 4.16 p.m.
§ Baroness Carnegy of Lour
My Lords, my noble friend is a hard act to follow. Noble Lords who were not aware of it already will realise that his copious and wide experience in so many areas of the subject under discussion make him a most valuable Member of this House and a most valuable chairman of the sub-committee of your Lordships' European Communities Committee which deals with food and drink. I am a member of that committee and I admire my noble friend more day by day as he chairs the sub-committee. He is an extremely skilled chairman.
I begin by referring to something which my noble friend Lady Elles said at the end of her speech. It seems to me that one important part of the Government's role at present is to emphasise and re-emphasise to food and drink producers in this country that they should not nowadays think entirely separately about the promotion of their products at home and their promotion of exports abroad. Years ago, when comparatively fewer people travelled abroad and food technology was less highly developed, eating and drinking habits were national and local. By definition, export markets were very different from home markets and very different from one another. It is obvious that nowadays trips abroad are a normal part of life for growing numbers all over 1084 the world. More and more, tastes and habits in food and drink are more and more crossing national frontiers.
However, it is not so well recognised that nowadays probably the best promoters of all United Kingdom food and drink are the business people, the holidaymakers and the students who come here from abroad and discover what they consider to be delicious locally produced goods to eat and drink. They return to their home countries and seek out those products there. If they can find them, they then start a fashion. High quality attractive food and drink products which are a success on our home markets not only satisfy United Kingdom consumers and reduce the need for imports but, because people are so mobile, they create export markets.
I should like to ask the Minister whether the Government could not do more to emphasise that fact to producers and hoteliers, restaurant owners, bed-and-breakfast people and all of us who entertain overseas visitors at one time or another. We can all be export promoters simply by making sure that visitors meet the best of British products which we can find while they are here. I do not believe that this involves spending a lot of money. It is a question of giving us all a lead and making plain what we can achieve.
The Government also have a role—this has been touched on in one context or another during the debate—in bringing together producers' own promotion, particularly when the producers are small firms in outlying areas. An excellent example of this is a booklet published by the government-funded organisation based in Inverness, Highlands and Islands Enterprise. The booklet contains details of nearly 100 small firms: producers of seafood, dairy produce, meat and poultry, drinks, bakeries, preserves and the like. It lists the types of products each firm provides, their seasonality, any quality assurance arrangements and current markets supplied at home and abroad. There are also details of trade associations that can be contacted and comments of appreciation by a number of well-known United Kingdom supermarkets.
This booklet is produced by highly skilled professional marketing people with a level of expertise which small or even medium-sized businesses cannot hope to command. It is primarily aimed at the home market but is used by Highlands and Islands Enterprise as part of its export promotion work too. The agency also assists firms, as does Scottish Enterprise, to exhibit on Scottish stands at major international food shows. It helps firms to make their own export arrangements and produce material in several languages. There is no question that government's role in setting up and funding that agency has born great fruit by bringing together the promotion of specialist products on the part of small producers in the Highlands. The agency has a thoroughly practical, unbureaucratic attitude to what it is doing. It has direct contact with producers, and the results are excellent. I hope that my noble friend can confirm the Government's commitment to this 1085 kind of funding because it seems to me the right way to spend public money in the public interest in this field.
Another role the Government must concentrate upon at the present time is that of encouraging livestock producers to look more carefully at their markets—several people have mentioned this—and to join together to try to identify what they can do about the demands of the market. I mention livestock farmers particularly because they have not been mentioned a great deal so far. They have become accustomed to devoting financial resources, energy and concentration to fending off the less sympathetic proposals of the common agricultural policy which my noble friend Lord Selborne has described so well. There now needs to be a change towards far greater effort in studying and meeting the demands of the real market. Farmers must spend less time trying to play the system of the Commission. It seems to me the Government have some educating to do in persuading producers that it is in their interest to put resources into that study. There must be a collective effort between the Government and the producers.
I shall give an example of this. Scottish producers of beef and sheepmeat have set up their own quality assurance scheme called the Farm Assured Scotch Livestock Scheme. It is funded entirely by their own membership. To belong to the scheme and for his product to carry the farm assured mark right through the marketing chain to the consumer, a farmer must maintain strict specified standards of husbandry and animal welfare. Animal feed must be free of contamination and the farm is subject to the scheme's inspection of its practices and records. That is just the kind of effort that is urgently needed if Scots beef and Scots lamb are to please the public at home and abroad. The more forward-looking farmers realise that and are prepared to put money into membership, but many are much more hesitant. Could not the Government do more to encourage and persuade people that it is in their interest to put a little money into the scheme in order to receive a lot more back?
My noble friend Lady Elles commented on whisky and the Government's role in its promotion. It is well known to your Lordships that but for the enormous value of whisky exports—I believe the Minister said that last year they were worth more than £1.9 billion; that is over a third of the value of the total United Kingdom food and drink exports —the trade gap would be much wider. The Government have worked hard in recent years, along with the European Community, to bring about the reduction or removal of a number of trade barriers across the world. It was reported in the press last week that the Foreign Secretary and his European Community colleagues had agreed with the United States of America that the name "Scotch whisky" can be used only when the whisky is manufactured in Scotland. I have not been able to check that report but I hope that it is true as I believe that would be a good move forward.
A number of barriers still exist in the Far East, South Africa, Scandinavia and Eastern Europe, but it is the European Community that is now Scotch whisky's largest market. In almost all the member 1086 states there are excise arrangements which favour wine and beer against whisky. The Scotch Whisky Association tells me that by far the greatest difficulty in combating that situation is our own Treasury's example. Here whisky and other spirits are subjected to almost twice the level of tax per degree of alcohol than is the case with wine and beer. Where the tax is lowest, the increase in exports is largest. Last year exports of Scotch whisky to France and Portugal increased enormously. Those are low tax countries, but even there the tax system favours wine and beer against whisky. Would not the Government be wise to favour whisky in this year's Budget? The effect would undoubtedly feed through to the trade gap. I shall not ask my noble friend to answer that question as clearly that would be a waste of time.
Finally, there is much the Government can do by simply not making life difficult for small firms. I believe that my noble friend Lord Selborne said this in another way. The other day I was talking to the proprietor of a small business in the Border country of Scotland. He has 24 Jersey cows and produces a very special and delicious soft cheese of the Brie type called Bonchester cheese. I must inform my noble friend Lady Elles that that name does not contain a "Y" or a "W". His sales amount to some £80,000 a year. It is not a big business in terms of a cheese manufacturing plant. He sells mostly to the home market, although sometimes he exports the cheese. A number of United Kingdom and European rules and regulations of necessity apply to Bonchester cheese and the proprietor has consequently considerable dealings with the Scottish Office. He has not yet had dealings with any other safety committee. He reported to me that the officials in the Scottish Office are extremely helpful and supportive. That is good news as we do not often hear such reports of civil servants. The proprietor said that the civil servants were most helpful and did not waste time unnecessarily in ensuring that his procedures were correct.
Wherever it is sold, Bonchester cheese reduces the trade gap. It is potentially a most attractive export and when sold in the United Kingdom it acts as an excellent import substitute for the Brie type of cheese or for Camembert. Therefore, the Government have a role there simply in refraining from hindering. I think that my noble friend the Minister agrees with that.
I have four questions. Could the Government not do more to make sure that we all recognise that the home market matters when it comes to exports? Could the Government give a stronger lead to beef and sheepmeat producers to get together to promote quality assurance? Will my noble friend make sure that the Chancellor understands about this business of whisky discrimination in this country in terms of exports? Lastly, does my noble friend appreciate how small firms can be helped by the Government doing not too much?
§ 4.30 p.m.
§ Baroness Young
My Lords, I should like to start by thanking my noble friend Lady Elles for introducing this debate today, and by apologising to her—and to 1087 the whole House—in that I was not in my place when she spoke. I am afraid that I was unavoidably delayed at another meeting.
The debate today is important. There is a great anxiety at the size of our balance of payments deficit, now running at a gap in the food and drink industry of some £5.9 billion—an increase, I believe, of 8 per cent. on 1991. To many of us this is a puzzling deficit. Of course there will be many items of food and drink that we shall need to import. For instance, wines and tropical fruits; and vegetables and salads, which we all now like to eat all the year round. But the Food from Britain organisation estimate that out of our total food import bill of some £13 billion, at least £3 billion could be produced at home. This does not close the gap, but it would be a considerable help.
I enter this debate with some hesitation because I do not pretend to understand the intricacies of agriculture. It is a subject on which I never speak, and I would be hesitant to do so in the presence of so many experts here today. But, as I understand it, from the farmers' point of view the changes in the common agricultural policy funding from 1984 to 1991 have led to a great reduction in the growth rate of production and hence of income. The proportion therefore of the home market held by British producers becomes an ever more important factor in their considerations.
There is a great incentive from the point of view of all of us in this country, and for the economy, to do something about the deficit. Apart from anything else, it would have a knock-on effect on increasing employment, which is so important at this particular time. It would help producers; I believe it would help retailers; and not least it would help the consumer. Contrary to a lot of popular opinion and a lot of old jokes, British food, at its best, is excellent, and compares with any food that is provided in the rest of the world.
The question is: what can be done? There are a number of things that have already been referred to and which the Government can and should do. But I should like to say something from my own experience as a non-executive director of Marks and Spencer where, I may say, 80 per cent. of the food that is sold comes from Britain. I believe that there are many things that farmers and growers could do, as well as the Government. They must become more market-orientated. The fact is that we live in a world in which the consumer is king. Consumers seek variety and choice all the time. People want, and expect, consistent quality at a price they can afford to pay. Although I understand the point made by my noble friend Lord Selborne about apples, the fact is that people like apples of the same size. Perhaps they should not but they do; and this is the kind of detail—or perhaps more than a detail—to which we need to pay attention.
I believe that many farms in Britain, although large by European Community standards, are not individually able to support the retail industry to the consistent standard that it requires. They are not producing on a large enough scale to interface comfortably with major retail groups. Perhaps I may 1088 just give one example of what I mean by this: the catering industry. I believe that chains of restaurants, for example, cannot get enough consistently high quality beef because different standards of quality from individual farms are the only things on offer in Britain.
Further, everybody who sits down to eat at these restaurants expects to have a tender steak. Hence, in many instances the catering industry imports beef from Australia or other overseas countries for their supplies. Therefore, there is a great need for market grouping. I understand that following a seminar in Downing Street recently under the chairmanship of my right honourable friend the Prime Minister, a market task force is to be set up. This must be good news; but of course it must deliver, and that needs effective leadership.
I said that there are things that the Government can and should do, but I should like to welcome the initiative of the Office of Science and Technology in promoting debate on the use made of research and development. The sad fact is, as I understand it, that too often the excellent work that is produced is not used by our own food producers. In one case, it is being used by the Dutch, who use it and then sell their products back to us.
On the side of the European Community, I believe that the Department of Trade and Industry should take all the necessary steps to ensure that the level playing field in Europe, about which we hear so much, is enforced throughout the Community. It is, for example, essential that Community member states do not introduce measures that become, effectively, non-tariff barriers, particularly in environmental matters and over consumer protection legislation.
I would not want in the course of my remarks to be over pessimistic, because I think there are a number of good things that are currently going on and which are good news and good practice and I hope can be built on. I have already referred to Marks and Spencer. They export each year some £30 million worth of food. This will increase each year as the company expands into Europe, and I have no doubt that we shall see ever-better results of this.
The House may be interested to know that 90 per cent. of all the food that we sell in France is supplied from Britain; 100 per cent. of the food we sell in Belgium comes from Britain; 95 per cent. of the food we sell in Eire is supplied from Britain; 80 per cent. of the food we sell in Hong Kong comes from Britain —and I could go on. It is quite an achievement. Some may say that it is something that might have been regarded as impossible—to sell our food so well in Paris—when one considers what the French think about food; but I know from my own visits to our store in the Boulevard Haussmann that sliced white bread, because of its long-keeping capacity, is very popular.
Your Lordships may be interested to know that we sell 75,000 muffins a week, and almost that many sandwiches, all of which are very popular. The reason why they sell well is that they are fresh every day, that their quality is of the highest, and that they are at a price that people are prepared to pay. All this should 1089 improve with the opening of the Channel Tunnel, which should make communications even easier. Apart from all this, throughout our franchise industries we sell a great many traditional English foods as well as recipe dishes. This has all come about because of a successful relationship with United Kingdom suppliers.
Perhaps I may give some examples of ways in which we have been able to use British products rather than those from abroad. For example, salmon is now supplied from the Scottish salmon industry, switching the source away from Norway. We are working very hard on the development of appropriate production techniques to match the quality and character of chocolate confectionery made in Europe and currently sourced from Europe. The poultry business was originally dominated by French producers. The present position is that production for Marks and Spencer comes entirely from the United Kingdom.
A very interesting success story is the marketing of strawberries. Two years ago Marks and Spencer bought one third of its summer strawberries from Holland, France and Belgium. However, as a result of investment and new technology, in 1992 sales of United Kingdom-produced strawberries were 70 per cent. higher than in 1990. That has reduced our imports from Europe by two thirds. It has resulted in a growth in total demand for strawberries because customers prefer to buy British.
In her Motion today, my noble friend asked what the Government can do. I have given some indication of ways in which the Government can, and I think should, help. But a great deal can be done and is being done by the industry. As in so many instances, we should build on best practice. We should ensure that it is possible to produce the food that British people wish to eat. With the advance of research, development and technology it is evidently possible to produce food for a longer season at a higher quality than was once thought possible. If we are to keep up as a country in the modern world we have always to look to the future. We have to put money into that technology and research, to develop food and to sell it. We should not sell ourselves short. Britain can produce some of the best food in the world. We should eat it ourselves and we should export as much as we can in order to reduce the balance of payments deficit.
§ 4.42 p.m.
§ Lord Gallacher
My Lords, the House will be grateful to the noble Baroness, Lady Elles, for giving us the opportunity to discuss the Motion and for the skilled manner in which she introduced the debate.
The current major trade deficit in food and drink is of significant concern, in particular that part of it that lies with northern European Community member states. In such a debate we are entitled to ask ourselves the reasons for that deficit. Those countries enjoy a similar climate. They operate under the same common agricultural policy regime. They are approximately equal in the economic conditions prevailing in each member state. The United Kingdom has a larger and more efficient farming system than many of those member states. Therefore the conclusion as to why we 1090 find ourselves in that position must surely be that there are significant deficiencies in marketing in the United Kingdom. That factor has come across plainly in most of the speeches today, the notable exception being Marks and Spencer. It was recognised when Food from Britain was established. Indeed in some ways it was the raison d'être for Food from Britain. I took the view at the time, however, that the creation of Food from Britain was a rushed job by politicians anxious to make a name for themselves and as a consequence it has operated since its inception with an uncertain financial base. To some extent that was due to the fact that the scheme was rushed. I shall say another word about that later.
The abolition of retail price maintenance in food and drink did not in the main produce the forecast competition in prices for brand leaders. Instead, the industry replied by introducing its own label. The own-label system has been such a success that in many major firms it represents 50 per cent. of their trade. The result has been to give the dominant food retailers of this country greater power over their suppliers. Comparisons are harder for consumers to make even with unit pricing. Consumer organisations are strangely silent about that factor in view of the fact that they pressed so strongly for the abolition of RPM.
It is also accepted by most people that planning consents for supermarkets now also favour national chains, which have therefore established a double dominance in both supplies and planning. Consequently, the buying policies of those supermarkets are vital and any preference for foreign goods, for whatever reason, will adversely affect our balance of payments. One cannot criticise the standards or stock ranges of United Kingdom supermarkets. The fact is that the most successful of those are now reporting net profits on sales of 7 per cent., which is higher than in the days of retail price maintenance in food. Admittedly, shops are larger. Economies of scale and operation are helping.
Supermarket operators argue that United Kingdom land prices and local authority demands for planning gain in return for consents necessitate net profits which are higher than the average in the United States and Western Germany. High United Kingdom net profits have attracted foreign competitors. We now have Aldi, Netto and Ed—an organisation which I have encountered in my county of Kent. Those stores offer a lesser range, a basic service and take a lower gross profit. Their appeal is for the supply of staple items of food. The buying policies of those organisations—they are growing—may have the effect of worsening the United Kingdom deficit in food and drink.
The role of Food from Britain is currently being reviewed, as the Minister stated in his opening remarks. As I said, I believe that Food from Britain has been under-resourced from the outset, partly because the system was introduced without much discussion with the trade as a whole, and producers, processors and retailers were confronted with it as a fact of life. That is not to say that it was not necessary; it is not to say that the people who recommended the 1091 Minister to go ahead were not competent people. Nevertheless, I refer to the speed of the operation and the failure to discuss it. Sometimes democracy, however depressing, is a necessary exercise, in particular if one is looking for money at the end of the day. The result is that the income for Food from Britain, apart from that supplied by government—and government periodically make noises about how much it costs—comes from such bodies as the Milk Marketing Board, the Meat and Livestock Commission and the Home Grown Cereals Authority, semi-statutory bodies in the main. As has already been pointed out, its finances do not compare in any way its French or German equivalents. Given such limitation upon finance, any idea that it can perform as effectively as those organisations is fallacious.
There is therefore a need for fresh consideration of the basis on which Food from Britain is funded. That point was touched upon quite effectively by the noble Baroness, Lady O'Cathain. In any case, if major United Kingdom retailers are now known for own-label products, as they are, how can Food from Britain be fully effective in promoting United Kingdom produced food in Europe and elsewhere? So far United Kingdom supermarket chains are not expanding in the European Community in similar fashion to the French, German and Danish company expansions in this country. Certain British operators are undoubtedly joining buying groups in Europe. However, that does not necessarily bode well for the future of our balance of payments. I believe that the review of Food from Britain which is now being undertaken needs to take account of both the funding and development intentions of British supermarkets.
The National Farmers Union is now showing some interest in food marketing. One welcomes attempts to persuade farmers at long last to look beyond the farm gate. United Kingdom farmers are not yet fully organised in food marketing. Farm marketing co-ops are limited in strength, certainly vis-à-vis giant supermarket organisations. The Ministry of Agriculture, Fisheries and Food now appears somewhat lukewarm about promoting co-operatives. There is a reduced role in that area for Food from Britain, as my noble friend Lord Carter mentioned in passing in his speech. Nor does the present and proposed system for market grants make much provision for stimulating co-operatives. They rank equally for grant, but there is certainly no attempt in the document I have just read to promote them in any special fashion. Therefore one is entitled to ask what Her Majesty's Government's position is as regards the promotion of co-operatives. Do they see a future for voluntary organisations of that character?
The Ministry is also now disinclined to support marketing boards, which are in effect statutory co-operatives. On this side of the House we were rather sorry to see the Bill which virtually ends the Milk Marketing Board and may also in due course bring the Potato Marketing Board to an end. That is not to say that one was over the moon about the performance of those organisations or thought that they were incapable of improvement. Nevertheless, 1092 the attitude of the Ministry appeared to be that their days were numbered, they were finished and it was best to be rid of them. So with the Bill we had, in effect, a funeral service for both organisations.
In that area the reliance upon the edicts of Brussels as a justification for the abolition of statutory marketing boards in this country was excessive. It was an unwise decision to acquiesce to the dictates of Brussels because, in our view, powerful marketing bodies are the answer to some of the problems which we are discussing this afternoon.
Marketing boards of a statutory character apparently survive elsewhere in the world, for example in Canada. In Ontario, for example, there are 25 such boards with varying powers. They cover a range of commodities from milk, via fruit, cereals, eggs, poultry, sheep and potatoes, to name but a few. I should like to ask whether the Canadian marketing board system has been considered in all the research which the Minister described in his opening speech. For example, has it been considered by Food from Britain, or even the National Farmers Union? How successful are marketing boards in Canada in reality, and will they form any part of the current review which the National Farmers Union is undertaking in this area? I wonder also whether Canada will be able to keep marketing boards, if it so wishes, under the new economic trade area negotiated in North America covering the United States, Canada and Mexico.
The principle of subsidiarity announced at Maastricht and endorsed in Edinburgh extends to the common agricultural policy. I am grateful to the Minister for a Written Answer yesterday which tells me that, even if heavily qualified, it is possible under the regime of the common agricultural policy for a measure of subsidiarity to exist. I welcome that.
I ask myself whether it is not now time for the United Kingdom to take an objective look at the basis upon which food travels from farm to consumer. Forty or so years ago the first Lord Lucas of Chilworth chaired an inquiry for the then Labour Government which produced a report in favour of extending marketing boards, including one for meat, with adequate safeguards for consumers. I believe that the gravity of the present balance of payments situation in food and drink warrants a reconsideration of the whole question. I hope that as a result of today's debate the Ministry of Agriculture will not keep such a closed mind on this matter as it apparently has at present and will take a broad look at the whole question. There is certainly much more to the subject than we have heard hitherto in the debate this afternoon.
§ 4.54 p.m.
§ Lord Mottistone
My Lords, I too thank my noble friend Lady Elles for introducing the subject and for doing so so skilfully.
I must declare an interest, having been employed by the Biscuit, Cake, Chocolate and Confectionery Alliance in varying capacities for more than 15 years. I shall therefore concentrate on conveying to your Lordships the views of the food processing industries generally and the biscuit, chocolate and confectionery 1093 industries in particular. Cakes are not yet exported extensively, although there is a growing market in the Middle East and in Europe. We hope to see that grow as time goes on.
There are three important points to make at the outset. First, food processors add much value to primary agricultural commodities. Their products are therefore potentially much more important export earners for the Community than primary products, a fact which DGVI of the Commission seems implacably resolved never to accept.
Secondly, as explained clearly by the Food and Drink Federation when giving evidence to the Agriculture Committee in another place on 19th February 1992, the concept of a trade deficit in narrow UK terms is inappropriate for the many food and drink manufacturers operating on a pan-European basis.
Thirdly, the trade deficit statistics do not differentiate between primary agricultural commodities and value-added processed foods. Taken across the board the food and drink products have a trade deficit but proportionately it is not nearly as great as the deficit for primary products. Some food and drink products, of which the United Kingdom biscuit, chocolate and confectionery industries are a prime example, have a positive trade balance. It is on the details of the export problems affecting those products, which I shall refer to as alliance products, that I propose to concentrate my further remarks.
Your Lordships may well ask what the industry is worried about if it has a positive balance of trade. There are three reasons why it is important that national and Community policies should be adjusted to ensure that the maximum opportunity is available for fair trading in processed food and drinks. First, the food and drink manufacturing industry as a whole is the single largest manufacturing industry in the United Kingdom. Indeed, my noble friend the Minister mentioned that in more detail. Secondly, those products which are in trade surplus can earn even more money for the UK and the Community if more can be exported. Thirdly, on a narrower front, the multinational companies to which I have already referred may well switch production from the United Kingdom to other EC countries if the internal tax arrangements are more favourable elsewhere. The current UK trade surpluses in alliance products may then turn into deficits.
There are four areas in which greater assistance could be provided by governments. By governments I mean our Government and the European Community. Before mentioning those areas I must say that most of what my noble friend the Minister described as current government help does not seem to me to tackle the matters which I regard as important. Yet more committees can easily be an excuse for postponing action.
I turn now to the real needs of the food processors. First, as my noble friend Lady Elles told your Lordships, chocolate, confectionery and chocolate-coated biscuits bear value added tax at 17.5 per cent. Most other foods in the UK are zero rated Most other EC countries have a much lower rate of VAT on 1094 alliance products. In 1997 the origin system is due to come into effect when, if the VAT differentials are maintained, products sourced abroad will be able to be sold more cheaply in the United Kingdom than UK-made products. That is surely an encouragement to multinationals to shift production abroad. More immediately, in the United Kingdom the home market can be strengthened by bringing the VAT rate for chocolate and confectionery products into line with the bulk of United Kingdom foods at the zero rate. That is something that the Government could do now.
Secondly, the quota system operates against the alliance products. That system was touched on by my noble friend Lady Elles and was uncovered as harmful by my noble friend Lord Selborne. Two important industry raw materials, sugar and milk, have unnecessarily to be imported from other EC countries because the quota system prevents UK farmers from supplying all that is needed at home. The Food and Drink Federation explained the problem well in another place on 19th February 1992. It asked when the United Kingdom Government were going to attack quotas.
Thirdly, I turn to the question of GATT. There is a pressing need for a resolution of the outstanding differences in settling the Uruguay Round. In 1982 I led a delegation of biscuit and chocolate manufacturers to Japan. During our visit we were able to persuade the Japanese to halve the biscuit and chocolate tariffs, from around 30 per cent. to 15 per cent. However, even at the lower rate our products could only be sold as luxuries, whereas 100 years of development of chocolate and biscuit manufacture in the United Kingdom enables those products to be sold as quality items to the broad mass of the people if not excessively taxed. I told the Japanese that they should see the post-war development of efficiency among United Kingdom food manufacturers as equivalent to that of Japanese car manufacturers and should impose a tariff accordingly—which would have been around 5 per cent. We need to get low tariffs for processed foods and drink. We cannot expand into all our potential new markets without low tariffs. We must have a GATT conclusion.
Fourthly, on the question of trade wars, noble Lords will remember that in June 1992 the United States published a so-called hit list of items to receive 100 per cent. import duty in retaliation for the EC refusal to adapt its oilseed regime. In the event the alliance's representatives at subsequent hearings persuaded the US authorities to remove alliance products from the list. A key factor in that achievement lay in showing that CAOBISCO, our EC trade association, had consistently opposed the distortions and excesses of the common agricultural policy. Industry had to help itself without much support from government.
In conclusion, the food and drink processors—suitably helped more relevantly to their needs both by the UK Government and the Commission—could be an even greater money earner in the world-wide trading scene. I believe that help to be essential—perhaps noble Lords may feel that I am overstating the position, but I do not think so—in such a major 1095 exporting manufacturing area if we are to survive as an independent nation. For the European Community, our survival is essential to the cohesion of Europe.
§ 5.8 p.m.
§ Lord Reay
My Lords, like my noble friend whom I follow, I must preface my remarks by declaring an interest. I am a consultant to a subsidiary of a very large and, I may say, very successful British company in the drink and food sector.
I welcome the renewed emphasis which my right honourable friend the Prime Minister has recently placed on the importance of our manufacturing base. The health of our manufacturing industry is indeed vital to the wealth of this country. This debate—for which we are indebted to my noble friend Lady Elles —gives us an opportunity to stress that manufacturing means chocolate biscuits and ice-creams as much as it means widgets or power stations. The food and drink industry is the single largest manufacturing industry in the United Kingdom, as my noble friend Lord Mottistone reminded the House. It employs some 600,000 people. Wherever the new fervour for manufacturing industry is to take us, it should certainly embrace the food and drink industry. But where will it take us?
I firmly believe that the primary role for government so far as industry is concerned is to establish and then maintain the conditions in which industry can flourish: low taxation; minimum government regulation; good industrial relations; minimum inflation—for it is the expectation of inflation which has in the past more than anything else destroyed long-term thinking by industry in this country and competitive markets at home and abroad. The Government have a supply side function of great significance to industry in raising educational standards, although industrial training needs primarily to be the responsibility of industry itself, which knows best what skills are needed. The Government also have a role in improving the functioning of markets. I shall come back to what the Government can do for that sector in that respect.
I do not think that the Government should be in the business of deciding which firms, sectors or even technologies are most worthy of support. I am even sceptical about the desirability of governments taking it upon themselves to decide what the right level of investment in manufacturing industry should be, and adopting fiscal incentives to encourage it if it is thought to be too low. One of the reasons for privatisation was that governments were not in the right position to determine proper investment levels; they would either under-invest or over-invest. If noble Lords doubt whether governments over-invest, I refer them to an interesting analysis of the European steel industry's problems in the Financial Times of 25th February, where that industry's parlous state today is (at least in part) attributed to over-investment by state companies during the past 10 years.
It so happens, however, that the food and drink industry could at several points be helped by 1096 legitimate government action; and the Government have shown gratifying signs of recognising that. In general terms, their pursuit of a completion to the Uruguay GATT Round and of continuing reform to the iniquitous CAP are both in accordance with the wishes and interests of the industry. One of the evils of the CAP is that it encourages farmers to produce for intervention without any interest in even ascertaining the demands of the market.
But it is not the CAP alone which stands in the way of a more interactive and constructive relationship between the farmer and the manufacturer. We are quite capable of producing our own home-grown impediments to free markets. It is surely absurd, for instance, that last year we ran a deficit approaching £600 million in the dairy sector, given our comparative natural advantages in that sector. The Government themselves firmly lay the blame for that situation on the persistence of the milk marketing board's quite archaic monopoly powers. I welcome the steps that they have taken to ensure the scheme's early demise.
It is surely equally absurd that alone among European countries we saddle ourselves with potato quotas, which have led to lower production and higher prices in this country. They have forced our manufacturers to resort to foreign suppliers and have produced a doubling of the imports of finished potato products over the course of the past 10 years. We would also be much better off without that market impediment.
The Government have also seen scope in trying to bring elements of the industry together—horizontally between producers to overcome their reluctance to enter co-operative arrangements and to encourage the development of bulk supplies to industry; and vertically between the different elements in the chain. The aim was to improve the industry's use of indigenous products.
As my noble friend the Minister told us, to that end the Government announced a group marketing grant in November the year before last which will contribute 50 per cent. towards the cost of creating producer groups. The Prime Minister's seminar in that same year and the Market Task Force within MAFF to which it also gave rise—I am not sure whether my noble friend told us how that had been proceeding and I should be grateful if he would say more in his wind up—were the first steps by the Government in what I hope will be a continuing campaign by them to bring together producers, manufacturers and retailers. I was greatly encouraged by what he told us about my right honourable friend's recent activities in holding export seminars in particular.
Export promotion is therefore a field in which the Government recognise that they have a role to play. In that context the Commons' Committee took the view that the Food from Britain organisation was significantly underfunded in comparison with its European counterparts. It wished to see the Government fund the last £1 million of their £4.5 million potential grant on a pound for pound rather than £1 for £3 basis. The noble Lord, Lord Carter repeated those criticisms.
1097 The Government reply was quite reasonable in pointing out that the government funding of Food from Britain amounts to 60 per cent. of that body's income. That is a much higher proportion than in the case of the equivalent French organisation SOPEXA; the equivalent German organisation receives no government funding at all—although the noble Lord, Lord Carter, spoke of para-fiscal levies, which is a new animal to me. Perhaps my noble friend the Minister in winding up will give his comments on the noble Lord's description.
Nevertheless, the noble Baroness, Lady O'Cathain, made a plausible case for the Government to make a substantial increase in funding for Food from Britain, linking it to the task of reducing the deficit. It would be proportionately a large increase but absolutely a very small one. I hope that in due course my noble friend will seriously consider it. I also look forward to the results of the consultant's report.
A serious bone of contention with the United Kingdom drinks industry and in particular with the Scotch whisky industry, touched on lightly by my noble friend Lady Elles, is the prevailing level of excise duty. It seems extraordinarily unhelpful to one of this country's notable success stories to treat it more severely than many other countries do, or more severely than we treat the wines that we import, on which excise duty as a percentage of alcoholic content is almost half that on spirits. Surely it hardly helps in the task of securing fair treatment for our exports abroad. Moreover, with the single market opening up cross-border trade, our high excise duties are likely to lead to increasing loss of sales and hence tax revenues to this country. There are already signs of that happening.
The Government have stated their belief that a better balance in the taxation between wine, beer and spirits within the Community is desirable. I realise that now is not a time to expect the Government to forgo large sums in revenue. But I join with my noble friend Lady Carnegy in hoping that nevertheless my right honourable friend the Chancellor will use the Budget to start the process of unloading the dice against us in that area.
As my noble friend Lady Elles explained, the context for the future of the food and drink industry is the development of the single market, which will force the pace of concentration in the industry. It is essential that our companies achieve scale on a European basis. International alliances are forming and producer networks are developing very quickly. The Government must continue to encourage our industry to look outward so that it participates fully in the opportunities presented. I see no reason at all why the industry should not be able to do so.
§ 5.15 p.m.
The Earl of Clanwilliam
My Lords, we have heard many expert speeches from noble Lords on the general and very large subject of our £13 billion food and drink industry. I thank my noble friend Lady Elles for introducing the subject. I hope your Lordships will allow me a few minutes' special pleading, in a still small voice, in the name of organic farming.
1098 In terms of our balance of payments, there is no doubt that there is room for import substitution benefits as well as benefits for organic farmers. I declare an interest in that I am a patron of the Soil Association which runs the symbol scheme ensuring the organic nature of members' farming activities over some 35,000 hectares of land in the United Kingdom. As noble Lords are aware, organic farming is a Cinderella among the big battalions of the farmers and in the agrochemical industry. I would not attempt to detract from the great export record of the cereal producers, for instance, as mentioned by the noble Earl, Lord Selborne. However, there has been overproduction. Hence the CAP has been involved, and we now have set-aside.
I should like to point out that there is a remarkable connection between set-aside and the loss of production which is claimed to occur from organic farming methods. The present-day highly mechanised farming will reject the organic system because it takes about four years to build up and results in a 15 per cent. to 20 per cent. loss of productivity. That is no good to anyone's pocket. However, the organic farmer has taken that on board. It is perhaps ironic that the only subsidy he receives is that for setting aside 15 per cent. of his land which has already been set-aside 100 per cent. by being organic. The Soil Association has been in close touch with MAFF and papers have been exchanged. We expect the Ministry to make some positive suggestions in the immediate future. We hope for a generous grant per hectare but I am afraid we have been warned not to be too optimistic in that view.
I hope I have put a slight case for organic farming so that we come to the point where it can help the balance of payments, which is the subject of our discussion. The organic food and related products market is worth some £200 million. In terms of £13 billion that is not a lot of money. Nevertheless, expansion is in view. Of that £200 million, 60 per cent. to 70 per cent. is imported from Germany and Denmark and a smaller amount from the Netherlands and France. That shows an adverse balance of £140 million out of the £5.9 billion deficit we had in 1992. That £140 million is just 2 per cent. of the adverse balance. We only need 49 more 2 per cents and we have won the day.
All European governments subsidise their organic farmers to some extent but only in Germany and Denmark is the subsidy a direct grant of between £100 per hectare and £213 per hectare per annum. That is absolutely legal and above board. Indeed, it is paid 50–50 by the state and the European Commission. I have some details, and perhaps noble Lords will permit me to quote from information that I received from the Soil Association.
The organic market continues to grow with some forecasts predicting that the market value could reach £1 billion by the year 2000. Assuming that the present ratio of home production remains static, this would result in an organic food import bill of £600 million by the turn of the century".It appears that in Germany conversion grants have been available since 1989 at the rate of £213 per hectare per annum for arable land and £150 for grassland. United Kingdom farmers would be very 1099 pleased to have that in their pockets. The total amount to be spent by Germany in 1993 is estimated at £32.5 million which is either £200 per hectare on 170,000 hectares in Germany or £100 per hectare on 270,000 hectares of East Germany and West Germany combined. In Denmark the conversion rate is £100 to £180 per hectare per annum and in that small country the production has risen from 6,000 hectares to 18,000 hectares this year. The expansion is rapidly growing. All those countries are flooding food into Britain as organic food and our own organic producers are unable to compete.
The organic acreage of western Europe as a whole increased from 180,000 hectares in 1990 to 530,000 hectares in 1993. Therefore there is a real threat to our balance of payments. We are in the same old position of paying the Commission to subsidise the import of food to this country while our own organic farmers are left unsupported in the cold world of unfair competition. It is not only ridiculous, but it is also damaging to the balance of payments to the tune of £140 million a year.
In this country the Soil Association oversees around 35,000 hectares which are dedicated under the symbol scheme to organic methods of farming. That is 75 per cent. of the UK total. At £200 per hectare the cost would be £7.5 million to be split 50–50 between the Government and the Commission. There is a suggestion coming from on high that we may obtain £1.5 million. Twenty per cent. is better than nothing, but it is a derisory amount and will not enable our organic farmers to compete with European producers in the European Community which we joined. That is an extreme disadvantage. I gave those facts to my noble friend on the Front Bench and hope that in the course of his speech he will respond to some of them.
§ 5.22 p.m.
§ Lord Wade of Chorlton
My Lords, perhaps I may first apologise to the House for not being able to be present in the earlier part of the debate, and to thank my noble friend Lady Elles for proposing it. I am grateful to the House for allowing me to make a short contribution, which I have been reminded I must do.
I have been in the business of trying to export British food, mainly British cheese, for the past 15 years. I must declare an interest in that I am now involved with a company which exports a large quantity of milk and milk products throughout the UK.
I should like to turn straight away to one specific issue. The debate calls attention to the role of Her Majesty's Government in promoting British food. It is unquestionable that those countries in Europe which are successful food exporters and which export more food than they import, have a clear government policy that that is what they want to do. I have attended all the fairs of the world trying to market British food. It is quite clear that those countries that are determined to redress their balance in that way and make food exports one of their major government policies, are the ones that are succeeding and offer the greatest competition to us.
1100 It is not something that happens quickly. It takes a long time to build up trade with a potential buyer in another country. My experience has been that it will take at least three years before one is likely to transact a sensible purchase. Therefore one of the drawbacks that this country faces is that one may have a window of opportunity when market prices are such that a particular commodity can be exported to another country, but unless one is confident that it is a product which will be available for quite some time, many people will be reluctant to take up the marketing. Clearly there must be an understanding that there is a long-term government policy to support the exports.
A number of noble Lords mentioned Food from Britain. I was closely involved with that scheme when it first started. I was always of the view that, unless it could receive an income in excess of £20 million, it would never be of any use and the money put into it would be wasted. In fact the money has been wasted. It would have been far better to have divided it among the people in the export business and for them to have used it as they saw fit.
If we are to raise that kind of money—the noble Lord, Lord Carter, may have referred to this—we must impose a levy on producers of raw material in the United Kingdom. A small levy in terms of cereal and milk would have produced a sum of money which would make food from Britain competitive with other countries in Europe. I am aware that last year Spain spent £4 million in the UK to promote Spanish food products. With that kind of competition £5 million or £6 million is ridiculous in the world markets in which we have to operate.
It is not necessary for the Government to foot the bill, but the Government should clearly indicate how industry and the basic food producers are to meet the cost. On the other hand, a few years ago if one had gone to the cereal producers and asked them for a levy, they would have been more than willing to pay because they wanted to increase the amount of cereal they produced. With the present 15 per cent. set-aside they are being held back from producing and would take a different view if also expected to pay a levy.
The milk industry is now finding it extremely difficult to secure the products needed to fill the markets that have been generated and developed over the past 20 years. There will definitely be a cut back on the amount of milk products to be exported from this country, merely from the shortage of milk. I suggest to the Government that they review the idea being pushed around that there should be two levels of milk production: one which is controlled by quotas and is at the price within Europe, and another where extra production is allowed at world market prices on the basis that the product will be exported out of Europe. That will give the industry greater impetus and allow it to maintain the export markets which have been developed over recent years.
Time is running out. I leave the Minister with one suggestion which I believe will have some impact. My noble friend behind me suggested that the last thing we want is to put more VAT on food; that we should convince other countries to take it off. I do not believe that that is likely to happen. I feel that any 1101 government will have to look to other sources of revenue. A small amount of VAT on food in the UK would be a positive decision. It improves the balance of importing because it is easier to export from a high VAT country to a low VAT country. One of the reasons that France, Holland and Germany export food is that balance. I suggest to the Minister that that is another point which he may like to consider.
§ 5.27 p.m.
Lord Montgomery of Alamein
My Lords, like my noble friend Lord Wade, I apologise that I was not here at the beginning of the debate. Indeed, I did not expect to be in the country as I was due to be in Madrid today. However, at the last minute the trip was cancelled and I hastened here to listen and ultimately participate in this fascinating debate on an important subject.
I should like to intervene briefly to mention the last stage in the added value of the food and drink industry; that is, the restaurant and catering trade. I declare an interest in that, first, like everybody else, I am a consumer in the industry. I also happen to be the honorary patron of the Restaurateurs Association of Great Britain, which is a small trade association which recently celebrated 25 years of life —no mean feat. I want to mention one specific aspect of the work which is the one that affects the debate; namely, the work that it has done in pioneering improved standards in catering.
After the war British restaurants and food had, generally speaking, a poor reputation. Over the past 25 years standards in the industry have risen to such an extent that Britons in the restaurant trade can hold their heads up and compete anywhere in the world. Indeed, many British chefs operate and work in France and elsewhere.
The restaurateurs association has played a major part in that, as have other associations. It has held national competitions for young chefs and waiters. It is an industry which employs an enormous number of people and offers job opportunities not only for work in all aspects, but notably an ability to advance for anyone who has talent and drive. Success stories in the industry are legion. I am glad to say that restaurateurs prefer minimum action and regulation by government, but they certainly welcome recognition that they play an important part in the life of our nation.
§ 5.30 p.m.
§ Lord Peston
My Lords, it is always a pleasure to talk about food and drink, especially in the presence of such expertise as I have listened to today. I cannot claim any expertise on the subject. The best I can do, as the noble Viscount, Lord Montgomery, and others have done, is to reflect largely as a consumer on some of the matters that have been placed before us. I wish also to make one other preliminary remark. The debate is couched in terms of food and agricultural products. There is one agricultural product which gets into the trade statistics—namely, tobacco—but I do not propose to talk about that subject today. Indeed, 1102 the presence of tobacco rather distorts the statistics anyway. I shall concentrate on what fellow noble Lords have referred to.
I thank the noble Baroness, Lady Files, for introducing the debate. I note that she introduced her excellent survey of the whole subject with some remarks on the state of the economy. Again, I do not want to go into too much detail on that but I wish to say a few words about two matters which she raised —devaluation and a stable currency. I for one, as noble Lords will be aware, do not resile from the position I held some time ago which indeed was the one stated most forcefully by the Prime Minister and the Chancellor of the Exchequer; namely, that it was right to be in the exchange rate mechanism; it was right to have a stable exchange rate for the sake of industry; and that it would be a catastrophe if we were driven out of the exchange rate mechanism and were forced to devalue. My view is that what they said then was correct and that what they are saying now is incorrect. What industry requires—I include agriculture in industry—is a stable financial framework; and, as this is an industry of which the international dimension is of the essence, a stable exchange rate is vitally important.
Secondly, and in connection with that point, it is not obvious to me—I put it mildly—that devaluation of sterling will be beneficial to agriculture in the long run or to the food industry more generally. A headline in the Financial Times yesterday stated:Pound slide brings an arable bonanza".But that is a very short-term view of the matter. It is not obvious to me that the devaluation of sterling will help us to close the deficit. This is partly a matter of what economists call elasticity of supply and elasticity of demand. It seems to me that the elasticities in this case are both so low that the trade deficit could actually worsen in the area we are discussing rather than improve as a result of devaluation. I would certainly be interested in the Minister's comments on that matter.
On the deficit generally, we ought to take a rather longer view than just looking at the figures of the past year or so. As an amateur, I decided that I had better look at the figures. What strikes me about the deficit in this area is that it has been on an upward trend for quite some time. The deficit has been relatively stabilised for a couple of years but over the past 10, 12 or more years the deficit has been rising. In particular, it has been rising in absolute terms. The position looks less bad as a fraction of GDP, but nonetheless when one is in deficit what matters is what one owes as a result of the deficit. The absolute figure is what you owe. To say that it is a small fraction of some other large number is not necessarily very helpful. We have to take the view that the problem is a serious one that has lasted some time.
To quote the noble Baroness, Lady Young, in many ways it is puzzling that this should be so. It looks as if this is a deficit that "ought to be smaller". I do not take a mercantile view of this. I am not one who says that intervention to prevent people selling to us is good. On the contrary, I am a fairly passionate free-trader except for one or two obvious special cases.
1103 The noble Lord, Lord Reay, and others reminded us that when we go into our supermarkets the range of products available is enormous compared with what we saw when we were all much younger. Indeed, when I am dragged into Waitrose or elsewhere by my wife and I am bored out of my mind, I wander around looking at the countries of origin of all, say, the fresh fruit and vegetables. Naturally, given my frame of mind, I add up the number of different countries from which one can buy these products. The number is enormous—30 or 40 countries quite easily, as one is looking across Waitrose.
In many cases it is inevitable that those products come from abroad—I do not want to suggest that we would be better off if we prevented them coming in —but in other cases one is mystified as to why foreign products are being stocked in season—it is not merely an out-of-season matter—when this is an opportunity for our own producers. I speak as a consumer. I just do not understand why that should be so.
I could refer in particular to the comments of the noble Earl, Lord Selborne, on apples. It is a very good example. I have not the slightest doubt that the Cox is the best apple that one can buy. There is no argument about it. I find it a mystery, however, that, if one is meeting consumer demands, consumers prefer to buy Golden Delicious, an apple which I find has no taste whatever. But I am told when I inquire about this that the consumer wants look and shape and does not seem to care about taste. I despair if that is the nature of our consumer. I could make a similar remark about tomatoes. It is ages since I tasted a British tomato that had any taste. I regret to say that the only decent tomato I have had recently came from Italy, but it tasted like something. When I inquired why no one else had such tomatoes I was told that it was because they come in different shapes and not standard sizes and that the industry and the consumer do not seem to like that.
These are consumer moans. My main point is to agree entirely with the view that all of this represents an opportunity for the agricultural and food processing industries and that we ought to be upbeat about it in exactly the way the noble Baroness, Lady Young, said that Marks and Spencer is; namely, it is determined to get its products from British sources and it is determined to be a success.
In that connection perhaps I may say that I too was puzzled by the remarks of the noble Earl, Lord Howe, on export promotion versus import substitution. Clearly, if one wishes to narrow the deficit, one must both export more and import less. But, given the scale of importing, I should have thought the better bet was import substitution by a long way. That is also true of many aspects of British industry. Only a few days ago the Daily Telegraph devoted a whole page to products —Sheffield cutlery is an example but there were many others—where it is not at all obvious why we are not meeting our own demands in our own markets.
I should like to be more persuaded by the Minister about his remark, which I may have misheard—if I did, I think other noble Lords must have misheard it in the same way—that the export side is the better bet. 1104 I am not going against the view that we ought to be trying to export more but there is a clear market at home which our people can win. The noble Lord, Lord Mottistone, mentioned biscuits, an industry with which he is involved. I am sorry to be so anecdotal but as I wander around our supermarkets I see biscuits coming in from Germany, Denmark and so on. I repeat my point. I am not against any of that but
§ Lord Mottistone
My Lords, perhaps I may suggest to the noble Lord that he did not look very far. The percentage of imported biscuits is of the order of only about 5 per cent. of the total market in the United Kingdom.
§ Lord Peston
My Lords, I am obliged to the noble Lord and I am also glad to have that piece of information. The shelves that I have in mind have a rather larger fraction, but it may well be that I tend to shop in the wrong stores. I do not know. My real point is that all these areas are open to our own industries to get in and grab the markets; and I take it that that is why the noble Baroness, Lady Elles, has introduced the subject for us.
That leads me to the Government's policy. There are some differences between us—I do not think we can doubt that. Some people are less interventionist than others. I wish to support what the noble Earl, Lord Howe, said about the Government being a facilitator. However, I hope that we do not hear the usual cliché of the level playing field or talk about fair competition when there seems little doubt in my mind that we are playing with not quite the same rules as our foreign competitors. I believe that other governments promote their food processing industries more than we do. I would like to see our Government operate in a more positive way, which I believe is what the noble Lord, Lord Wade of Chorlton, was saying.
I return to the question of quality. I remain convinced that a country like ours in all areas, and not just the one we are discussing today, can survive only if we set the highest quality standards. I do not believe that we should be in the low-cost, low-wage business in any area at all. We have to be a high-wage country because it is something we strongly believe in. Therefore, we have to be a high-productivity and high-quality country. I believe that in so many areas we show that we can be. I take the point made by the noble Viscount, Lord Montgomery, and I also declare an interest. I too have at least some connection with the restaurant business. The restaurants in our country are now outstanding. The Michelin Guide to restaurants in this country is a ludicrous publication. It does not recognise the outstanding quality of our restaurants, and we put up with that nonsense instead of ourselves pushing our own quality. That brings out why quality is so important and why we should have confidence in other areas. Without wishing to be too personal, the cheese of the noble Lord, Lord Wade of Chorlton, is as good a cheese as one can possibly get. We all know that he gives us some at Christmas-tide and we look forward to some more. Perhaps we can have some earlier in the year as well. Again, we do not have to be ashamed, but we must make sure that we sell those products and compete vigorously.
1105 I believe that I have covered as much of the ground as I want to. One matter I have always been keen on —I do not say this in an acerbic way—is to view agriculture and food processing as an industry. For example, I have never understood why we have MAFF. I have never understood why that particular set of activities is separated from everything else which is called industry. Of course, I do not want civil servants to be unemployed or anything of that nature. There is an oddity about that situation. One of the factors from which I have gained a great deal of pleasure and interest in today's debate is that we have not approached it as a narrow agricultural or food debate. We have tried to set it in a broader context.
I end with something of which I also wish to be supportive; namely, the Strathclyde Food Project which my noble friend Lord Carter and others drew to our attention. Not only is that project worth supporting in the context of the present debate, but I would like to see the so-called "bottom-up" approach adopted throughout British industry. I refer again to the Daily Telegraph article. I would like to hear people in area after area saying, "Why are we importing this product? What is there about British suppliers which accounts for why we are not producing and supplying it?"
One reason was supplied by the noble Lord, Lord Wade, when he said that to do anything is a long-term commitment. Therefore, one needs an economic and financial framework so that if one begins today on a project, one does not get a pay-off for three or four years; therefore, one does not want the economy to turn down again, and so on.
However, I do not like to end on too much of an up-beat note because, as an economist, gloom is the business which I thrive on. I shall be interested to hear the noble Earl's reply to my final point. The deficit is quite large and the economy is still in recession. I said earlier that I was less optimistic about the outlook than some. If and when—and I hope that it is "when" rather than "if"—the economy starts to move forward again, I believe that the deficit will grow even larger. What interests me is whether the Government have anything to say about the likely size of our deficit, not now but in a year or two when we hope that the economy will be booming again.
§ 5.45 p.m.
My Lords, I have sometimes heard it asked—I believe more in sorrow than in cynicism— whether general debates in your Lordships' House are accorded by government the degree of attention which they deserve. Having listened to speakers this afternoon and the depth of knowledge which is so apparent, I would like to say first of all that I found this an outstandingly helpful debate and that the Government will look positively at the many constructive suggestions which have been made to see what further action we might take.
First, I am grateful for the many comments which have been made by speakers about Food from Britain. These are very timely because, as I mentioned earlier, Dennis Stevenson is still working on his independent 1106 inquiry. The Government are keen that Food from Britain should play a prominent role in the future of this area, particularly in export promotion.
Food from Britain was created in 1983 as a "resource for the industry", which is what it is, and we want to keep it up to date. I shall see that the comments made about Food from Britain are drawn to Mr. Stevenson's attention.
My noble friend Lady Elles and the noble Baroness, Lady O'Cathain, urged better co-ordination of the various export bodies. The Government recognise that industry wants Food from Britain to devote more resources to export promotion. Currently, two-thirds of its resources go into that, including the UK-based staff, and there are also 21 staff overseas. That is why we commissioned the independent review of Food from Britain by Dennis Stevenson. He is looking for a solution which will command industry support. The Government are looking forward to receiving his recommendations.
The Government do not accept that Food from Britain should receive a larger contribution from the taxpayer. It exists to promote the interests of the industry, which should pay for any increase in resources. It is true that there are several government agencies promoting exports. The DTI and the Foreign and Commonwealth Office work together in a joint directorate to provide overseas trade services. The British Overseas Trade Board provides advice on markets in that context. Those arrangements cover most sectors and most markets.
Food from Britain is of course a specialised food promotion body which is designed to provide a more expert service in its own field. Most customers are well satisfied with its export promotion work and especially the help provided by the overseas offices. Co-ordination among the various export promotion agencies takes place in the Whitehall export promotion committee which meets regularly under DTI chairmanship.
The noble Lord, Lord Carter, asked whether there should not be funding for Food from Britain on a pound for pound basis. The Government already provide some 60 per cent. of the cost of Food from Britain. That amounts to £4.8 million out of a total of £7.8 million. A number of noble Lords have urged that the Government should contribute more. Moving from matching £3 of industry funding with £1 of government money to a pound for pound basis would raise the Government's share by £2 million, or to about 69 per cent. of the total. As my noble friend Lord Reay pointed out, that is a much higher proportion than SOPEXA receives in France, where the contribution by industry is rising. The German body (CMA) is entirely industry funded.
§ Lord Carter
My Lords, I am grateful to the noble Earl for giving way. I am sure that he will accept that SOPEXA in France has only 50 per cent., but that amounts to £27 million. One can do a great deal more promotion with £27 million than one can with £6 million.
Yes, if the money is used properly. I like to think that we get good value for money from Food 1107 from Britain. When that body was set up, the understanding was that the Government would pump-prime and that industry would later take over the funding. Nevertheless, the Government have always paid for the bulk of the funding. The review of Food from Britain is intended to see that it does what the industry wants. I hope that the industry will be prepared to provide more support if it wants Food from Britain to do more.
In the same vein, my noble friend Lady Carnegy referred to the Highlands and Islands Development Board. Government help is not limited just to Scotland. Food from Britain helps small food processors—which was a particular concern shown by the noble Baroness—under the speciality food scheme. The export efforts of small firms are also aided under DTI schemes. My noble friend urged a policy of minimum interference from government. Deregulation is particularly important for small companies.
My noble friend Lord Carter—I mean, the noble Lord, Lord Carter, although in other contexts he is my noble friend—asked about EC funding for food promotion, as did my noble friend Lady Elles. It is worth remembering that part of the co-responsibility levy on milk is directed to promotional activity for that commodity. The levy is due to be abolished soon, although money will still be available from that source for the 1993–94 milk year. On beef, the Agriculture Council agreed a quality beef promotion scheme as part of the reform of the CAP. The Commission's detailed proposal is expected in the next few weeks and some 10 million ecu is likely to be available for the Community in 1993 for the promotion of quality beef. There is also a scheme to encourage the consumption and utilisation of apples and citrus. The Community provides up to 60 per cent. towards the cost of these measures, which include surveys, consumer tests, nutrition and diet campaigns, new forms of market presentation and research.
My noble friend Lady Elles asked whether there is specific EC funding for sales of food in third countries. The EC already spends large sums on export restitutions on food that is sent to third countries. These apply to most primary commodities and to manufactured foods. A GATT deal would mean that that aid would have to be reduced. Therefore, it is unrealistic to believe that we could introduce new subsidies into this area.
There have been many comments today—not least from my noble friends Lady Elles and Lady Carnegy —on the theme of regulation and deregulation. This is not an easy area, and as much of the legislation was put in place for good food safety reasons these considerations cannot simply be discarded. Nevertheless, the Government are determined to lift the burden when it is at all practical to do so. A top-to-bottom review is taking place in MAFF at the moment. An example of action already in hand is the Agriculture Bill, which will provide for change on both milk and potatoes. For milk, where we are less than self-sufficient, it is vital that our production should be able to go into the products which are 1108 genuinely of high added value. I fully agree with my noble friend Lady Elles that it is not satisfactory to export skimmed milk powder, butter and commodity cheese—all of which are products at the bottom end of the price spectrum—only to import yoghurt and fromage frais, or substitutes for Bonchester cheese, which are at the top.
On potatoes, we have in the UK a system which, uniquely in Europe, limits our production, and we import not just fresh potatoes, but also value-added processed products, for which the market is burgeoning. As my noble friend Lady Elles pointed out, processing is already occurring abroad which should be happening here to the benefit of British jobs and investment. It is not difficult to imagine the outcry if the Government were to negotiate a regime in Brussels which placed quotas on UK producers alone and allowed other member states to produce what they liked and to exploit new markets in this country. I agree fully with my noble friend Lord Reay on that. The Government understand the concern of growers, but change is inevitable in this sector as a result of the proposed EC regime. We have some of the most efficient growers and processors in the world and I do not think that they should have anything to fear from greater market freedom.
Several of your Lordships have touched on the international dimensions to this issue—CAP reform and GATT. To take up a point raised by my noble friend Lady Carnegy, the Government have long sought to bring the Community's support policies into line with the needs of the real market. The CAP reform agreement reached last May was a step towards this goal. By cutting prices and reducing the role of intervention buying, notably for cereals and beef, this agreement will bring farming closer to the market and encourage farmers to pay greater attention to the demands of customers. Externally, it should also enable Community produce, including that from the UK, to become more competitive on the world market.
No agreement is perfect and, in common with my noble friend Lord Selborne, we are not overenthusiastic about individual producer quotas and compulsory set-aside. Quotas bring with them many problems, not least of which is complexity of administration. The introduction of direct payments and the extension of supply controls were bound to mean more bureaucracy. But the Government question whether all the demands that the Community is now making on farmers are necessary. This is a point which my right honourable friend the Minister intends to raise shortly with his colleagues in the Agriculture Council in Brussels.
The settlement, when one is reached, on the Uruguay Round of GATT will also have a major international influence on our agriculture and food industries. Although the final package has yet to be agreed, it seems clear that the agricultural part of any eventual deal will follow closely the proposals put forward by Mr. Dunkel, the GATT Director General, in December 1991, subject to the compromise reached last November between the Community and the United States—the Blair House accord. Such an 1109 agreement will lead to reduced levels of agricultural subsidies, open up markets and reduce the impact of subsidised exports which depress world markets.
CAP reform will put the Community and the UK in a strong position to take advantage of these market openings as Community support prices fall and as world prices rise in response to the removal of subsidised exports from world markets. Overall, this is a good agreement for the UK food and farming industries.
We should not, in any case, lose sight of the broader picture: the UK economy needs a comprehensive GATT agreement, as does the world economy as a whole. Without one, the world will slide increasingly towards protectionism, which will hit trade in food and agricultural products as much as any other sector.
The noble Lord, Lord Carter, asked what the effects of CAP reform and the GATT settlement would be at the end of the day. Clearly, there are many variables in trying to calculate the macro-economic effects of CAP reform and the GATT settlement. Many of the commodity regimes are only just beginning to settle into their new patterns and it is too early to predict any effects on the UK balance of payments. Restricting output may have a short-term negative effect on the deficit but, in the long term, reform of the CAP should create the conditions for competitive industries such as ours to flourish. With regard to GATT, it would be unwise of me, and perhaps a little pointless, to make detailed predictions about the effect on the trade deficit of an agreement that has not yet been reached. However, I think that everyone agrees that a GATT deal would be good for world trade and for Britain.
As I have said, the Government intend to play a supportive and facilitating role to help the industry to make the changes needed to achieve its potential. The initiative for change nevertheless rests with the industry—with all the enterprises in the agriculture and horticulture, food manufacturing and processing, retailing and catering sectors. These need to work together as never before if opportunities for British food suppliers are to be expanded to their full capacity.
There are welcome signs that the industry is facing up to those challenges. Manufacturers and processors from meat to confectionery to biscuits are operating increasingly successfully in export markets. Some of our retailers are opening stores abroad——my noble friend Lady Young mentioned Marks and Spencer —while others have connections with continental retailers. All these avenues need to be exploited more to promote UK exports.
There are some excellent collaborative ventures within the UK. The Strathclyde Food Project, which was mentioned by the noble Baroness, Lady O'Cathain, embraces producers, processors and retailers and is seeking to identify real action which can be taken to improve the opportunities for British food suppliers. Some retailers have their own initiatives to promote collaboration with producers.
My noble friend Lady Carnegy mentioned quality assurance. In that vein, I believe that our industry needs to look carefully at the new EC regulations on 1110 certificates of specific character and protection of geographical designations. With effect from July of this year, producers of traditional, regional and speciality foods will be able to have their products recognised under the new registered denomination system as authentic, high-quality British products, easily recognisable in export markets around the world. Food from Britain will be administering the scheme. It provides an opportunity to create a marketing advantage which competitors in other member states will not be slow to exploit.
My noble friend Lady Carnegy said also that everyone should emphasise the quality of UK food. I agree with her. Of course Food from Britain already promotes our food at home and abroad. When EC Ministers and officials visited the UK during our presidency we showed them the best of British food and drink. Many of them were frankly amazed at their excellence. Their comments were favourable. My noble friend also mentioned the farm assurance scheme for beef and lamb. Producers, with the assistance of the Meat and Livestock Commission, are developing the farm assurance British beef and lamb scheme in England. The industry is also developing a farm pig assurance scheme.
As I said earlier, I am pleased that David Naish has accepted the Prime Minister's invitation to lead an industry initiative on food marketing and that all sides have pledged their support. Mr. Naish is doing that in a personal capacity rather than as president of the NFU. The Ministry is providing back-up, and I am sure that your Lordships will wish him well with that important task.
My noble friend Lady Elles asked a number of questions, and I am grateful for the prior notice of them that she gave me. She referred first to food safety regulations in the UK. The UK has high standards which are of considerable benefit to British industry and consumers. All EC countries have food safety legislation with broadly similar principles. The official control of foodstuffs directives requires all member states to enforce EC food law. Additional measures before the EC Council would provide for a small EC food inspectorate to check up on the effectiveness of national arrangements.
My noble friend referred also to broiler costs. There has been much discussion between MAFF and the industry about the differences in production costs between the UK and France. Before the sterling realignment, the figure was 5p to 6p per bird. Less than half of that difference was attributable to factors under government control. Only about 1p per bird related to meat inspection and the ban on bovine offal in feed. A bigger effect was caused by the ban on poultry offal imposed voluntarily by major poultry buyers. The Government have nevertheless taken action to reduce poultrymeat inspection costs by allowing plant staff to do the work. We obtained a new directive in Brussels and we issued guidance to local authorities to facilitate the use of plant staff in the interim.
My noble friend also mentioned milk quotas. A number of speakers referred to quotas generally. As I said, the Government have no love for quotas. They 1111 are bureaucratic and inflexible. They are, however, a fact of CAP life. We shall do our best to ensure that they apply as flexibly as possible in this country. My noble friend referred also to the trade deficit in fruit and vegetables. Imports of fruit and vegetables were £3.1 billion in 1992 and exports were £0.3 billion, leaving a crude trade gap of £2.8 billion, which is the largest individual sectoral deficit. Much of the imports are of non-indigenous or out-of-season goods, but the Government accept that there is scope here for the industry to improve its performance. Horticulture is not constrained by CAP limitations and there is no reason why growers should not increase their exports. We are currently holding seminars and conferences with growers in all sectors of horticulture to ensure that they have full information about market opportunities and the single market requirements; for example, on plant health.
My noble friend referred to the recent report on the nutrition of children. I recognise the importance of nutrition for children and the need to establish good dietary habits early in life. The Health of the Nation White Paper sets targets for dietary changes for the population as a whole. A reduction in the consumption of fats and saturated fats, which is to be achieved within the context of the whole diet, will require the increased consumption of starchy staples: bread, cereals, pasta, potatoes and vegetables and fruit. A nutrition task force has been set up to draw up a programme of action to achieve the targets. It will be looking at the nutrition of children within that programme.
With the benefit, and perhaps I may say the luxury, of hindsight, the noble Lord, Lord Carter, questioned the wisdom of the salmonella controls on poultry in 1989.
My Lords, the Select Committee in another place was fully in accord with what the Government then did. We must remember that those measures were introduced following an increase in the number of cases of human food poisoning caused by salmonella enteriditis linked epidemiologically with eggs and egg products. It was followed by a catastrophic drop in the demand for eggs. The measures aimed to reduce infection throughout the production chain, from the supply of feeding stuffs to the production of healthy breeding and laying stock. We believe that that integrated approach minimised the risks to public health. I believe firmly that the controls have contributed to restoring consumer confidence in British eggs and that without them the egg market would have collapsed completely, resulting in even higher imports.
The noble Lord asked whether the Government have a blueprint for collaborative ventures. The Government do not have blueprints for industry sectors. The deregulation of the milk and potato sectors will permit the establishment of structures which are most appropriate to the needs of those sectors. The group marketing grant is administered 1112 flexibly. We have no blueprint for the right business structure, nor do we look with disfavour on co-operatives. Applicants come to us with the structure that suits them best. The old co-operative grant scheme was wound up because of a lack of uptake. The success of the new scheme, with more applications incidentally than we originally forecast, shows that our flexible approach is right.
The noble Lord, Lord Carter, asked how much of the group marketing grant is new money. All the finance is new money. There is £5.4 million allocated for the first three years of the scheme. The old scheme no longer appealed to the industry. We had to negotiate new money with the Treasury upon the basis that there was a new need. The noble Lord also raised the possibility of an independent food standards agency. It is not right to divorce food safety matters from food production. MAFF looks at all sectors, from farmers and growers, through the processors and manufacturers, to retailers and caterers. We have set up the food safety directorate within MAFF to pay all due attention to food safety.
My noble friend Lady Young referred to research and development. Over £300 million of public money is being spent in 1992–93 in support of government R&D policy on agriculture, fisheries and food. The MAFF element amounts to £124 million. Agriculture, fisheries and food R&D has always been, and will continue to be, an essential part of the Government's R&D programme. The Government plan to continue spending substantial sums to enable them to fulfil their statutory obligations and to address and resolve, for example, food safety and hygiene issues of interest to consumers, producers and industry.
My noble friend Lady Young said that caterers import beef because they cannot obtain consistent quality from home sources. Caterers say that regularly. They tend to import steak from the southern hemisphere. We are encouraging caterers to work with UK suppliers to develop a UK supply. Whitbread, which is the second largest caterer, has recently joined the Strathclyde food project.
My noble friend Lady Young also made the point that small farmers are not big enough to interface with large retailers. I agree that this is a problem. The aim of the group marketing grant is to encourage groupings which can deal with big buyers. The trading code will also help to give them confidence to do that. My noble friend Lord Mottistone said that the food trade gap was less pronounced for manufactured goods. It is correct to say that the trade gap in highly-processed foods is significantly less pronounced than for unprocessed foods.
Nevertheless, there is scope for greater exports and the Government are anxious to help. In addition, a GATT deal should help and no one is keener than the UK Government for a settlement to be reached. My noble friend Lord Reay asked about the work of the market task force. The task force has a number of functions but the most important are the development and administration of the group marketing grant. Incidentally, the turnover of the groups which are assisted is projected to be more than £200 million. There are initiatives such as origin labelling, export 1113 seminars and the trading code, the arrangement of the Prime Minister's seminars, the encouragement of producers, retailers and processors to collaborate and the encouragement of government colleagues to take account of marketing considerations as their policies develop.
My noble friend Lord Clanwilliam drew the attention of the House to organic farming. Organic food is a small market and like all other markets it responds to consumer demand. However, there is a trade deficit in organic produce. The group marketing grant is available to organic food producers. We have received and approved two applications in that sector. As my noble friend said, consideration is being given to aid schemes to encourage organic production under the EC agri-environment package. We shall issue a consultation document on that in the near future. In the background Food from Britain runs the UK register of organic food standards. That register maintains the standard for organic food and is an important safeguard for the industry.
My noble friend Lord Wade said that Food from Britain should have been funded by a levy on all producers. I do not believe that it is a simple matter to tell people to pay a levy. In fact, cereal producers and the meat and livestock industry already pay levies to the MLC and the HGCA. Levies are acceptable only if the great majority of producers want them. I am afraid that there is no sign that industry is prepared to pay such a levy.
My noble friend raised the interesting idea of a two-tier market for milk. Unlike the sugar industry where there is only a small number of processors, it would be difficult to make such arrangements for the dairy industry and it would be costly to administer. The world market for dairy products is limited. Since the EC already has a 50 per cent. share of that market, any non-quota exports will be likely to displace existing exports. If that happened, in order to avoid increasing EC expenditure on intervention, EC milk quotas would need to be cut, which rather defeats the object.
The noble Lord, Lord Peston, referred to the excellence of Cox's apples. He also referred to the effect of devaluation on the trade gap in the light of elasticity of demand. I do not wish to comment now on the elasticity of demand or on foreign apples. However, I agree that in the short term depreciation may make the trade gap worse because it immediately makes imports more expensive. However, in the longer term the industry should respond to more favourable trading conditions and that should make it easier to export and to substitute for imports.
The noble Lord, Lord Peston, also bemoaned the absence of tasty tomatoes. It is not true that there are no tasty tomatoes in the UK, and I speak from personal knowledge. British retailers and producers have recently been working to develop new and tastier varieties.
The noble Lord also asked me what I meant by my remarks on import substitution as opposed to export growth. I sought to make the simple point that the scope for import substitution is limited. Many imported goods cannot be produced here and there is 1114 no such limitation on exports. The Government believe that action needs to be taken on both sides. The point that I was trying to make is that export promotion has not always been a high priority and we believe that exporting needs more effort.
The noble Lord said that the deficit will grow when the economy picks up again. I do not believe that there is any need for the food deficit to increase because people will not eat more food—I take it that that is what the noble Lord was referring to when he mentioned elasticity of demand. As economic conditions improve for our industries, they should be able to export more and I believe that the noble Lord will agree with that—
§ Lord Peston
My Lords, I congratulate the noble Earl because that was the most brilliant answer I have heard for a long time. Perhaps on reflection he will believe that as incomes rise, people will consume more food—possibly, some imported food.
My Lords, it will be interesting to observe what happens when the economy revives, which I believe is already happening.
I have sought to explain what the Government have done, are doing, and intend to do in this important field. We are seeking to encourage collaboration, better marketing and a higher priority for exports. We shall be doing everything possible to lift burdens on the industry so that enterprise and initiative can be released. We approach the issues with an open mind and will consider all ideas and suggestions raised in the debate. While the Government have an underpinning role, the responsibility for action still rests with the industry. I hope that it too will take note of what has been said today.
§ 6.16 p.m.
§ Baroness Elles
My Lords, I warmly thank my noble friend Lord Howe for the way in which he responded to the debate tonight and for the care with which he answered the many questions that were put. I thank him too for the encouraging way in which he pledged Government support for the industry, and for taking note of all the comments which have been made in the debate. I hope that he will take particular note of my proposal for school meal nutrition. It is an important aspect not only of import substitution but of the health of the nation. It might also help my noble friend Lord Selborne to get rid of his 60 millimetre Cox's apples. The Cox's apple was the one issue which united all sides of the House in agreeing that it is the best apple. We should like to see more of them in this country and I should love to be able to buy a Cox's apple on the Continent.
I thank all noble Lords who have taken part in the debate. It has shown once again the high level of expertise, knowledge and wisdom contained in this House. I hope that the industry has benefited from some of the comments which have been made from noble Lords on all sides. There has been a great combination of good will and hope for the industry. I hope that will be carried outside this House. It will help the nation in employment, in its health and in the economy. I beg leave to withdraw the Motion.
1115 Motion for Papers, by leave, withdrawn.