HL Deb 22 March 1994 vol 553 cc643-62

6.33 p.m.

Lord Pitt of Hampstead rose to ask Her Majesty's Government why they have not supported the European Commission's proposals for technical aid and income support to the African, Caribbean and Pacific banana-producing countries, and whether they are satisfied that the commitment in Protocol 5 to the Lomé IV Convention can be fulfilled in relation to our traditional Caribbean banana suppliers without such aid and support.

The noble Lord said: My Lords, I begin by saying how deeply I regret having to ask this Unstarred Question. Her Majesty's Government played a very praiseworthy part in enabling the European Union to produce a banana regime which would fulfil the commitment in Protocol 5 to the Lomé IV Convention and which guaranteed that traditional banana exporting states would have no less favourable treatment in the future than they enjoyed in the past in respect of both access to their traditional markets in the European Union and their advantages in those markets.

In the case of the United Kingdom, those advantages traditionally comprised not only duty-free access but also market management, which ensured an economic return. Until last year those traditional advantages, although guaranteed under Lomé, were applied on a national basis by the United Kingdom, France and Italy, which are the three traditional ACP markets. When the Community was joined by Greece, Spain and Portugal, the markets of those countries were similarly protected for the benefit of their own domestic growers. But those arrangements existed side by side with totally open markets in the other six member states, apart from the 20 per cent. tariff on other third country imports. Even then, Germany had a dispensation from applying that tariff under a special protocol in the Treaty of Rome.

That was the situation until the coming of the single market. All those arrangements had to come to an end with the advent of the single market under which internal frontier protection between member states disappeared. But although that happened, the European Union's commitment under Lomé remained and had to be met in some other way.

To achieve a common regime for the whole of the European Union, a regime was introduced in July 1993 which guaranteed access to traditional volumes of ACP bananas and applied a tariff quota for third country imports, which were initially fixed at 2 million tonnes. Importation above that level was still permitted but only subject to a very high tariff. It has been said--in fact one knows it from a reading of what happened—that the regime was only agreed with great difficulty. It is being challenged by Germany in the European Court. It is also claimed that important features of the regime are inconsistent with GATT rules. For the purpose of today's debate we can ignore those, except to record that I believe that the uncertainties increased the need for some form of aid and income support. The regime was expressly designed to ensure that traditional ACP supplies continued to find an economic return in the Community market comparable to that which they had hitherto enjoyed.

The European Commission recognised that transition to the new regime would entail a risk of market disturbance and loss of revenue which small-scale producers in the ACP countries would find difficult to support. Because of that, it proposed a system of emergency income support which would apply if the market was disrupted, but only until stability was restored. Unfortunately, the Commission proposal was not adopted by the Council of Ministers and Her Majesty's Government was, and remain, one of those who opposed it. As your Lordships will realise, the fact that Her Majesty's Government played such a leading role in all other respects as a champion of ACP interests in this sector meant that the United Kingdom opposition to the proposal had an extremely negative impact in the Council. Therefore I ask the Minister tonight to explain why Her Majesty's Government are so opposed to the proposal.

The foresight and wisdom of the Commission proved only too well founded. In answer to a Written Question the noble Earl, Lord Howe, supplied figures showing that the price of bananas in the case of the Windward Islands—the area in which I am most interested—fell from £562 per tonne in March 1993 to £524 per tonne in September 1993 and to £373 per tonne in December 1993. Noble Lords will not need me to explain or expand on the implications of those figures. The returns fell well below the cost of production.

Under the Commission proposal the producers would still have been assured of some economic return based on historic links. It is because the proposal has not been accepted that they are experiencing their present suffering. The absence of emergency income support has created great hardship for small farmers who grow bananas in places like the Windward Islands. The effect is particularly detrimental in those islands because bananas provide a regular income to the large and growing number of small peasant farmers who live there. I refer to people such as my grandfather, although that was a long time ago—or perhaps not so long ago.

It is probably fair to say that bananas are a perfect cash crop for the small farmer. Production is non-seasonal and through the ratoon process there is a continuous cropping system which provides a regular source of income throughout the year—income every week or every fortnight. But the small farmers cannot sustain large variations in the price of the crop. They need the type of income support recommended by the Commission. My question to the Minister is: why are Her Majesty's Government denying them that support? It seems particularly unfair because precisely the same provisions have been adopted for the benefit of the European Union's own producers. As a consequence they have been largely protected against the effect of the market collapse. Why are the poor farmers in places like the Windward Islands being made to endure that hardship? It is particularly galling to the Windward Island farmers because, as Martinique and Guadeloupe are departments of France, they receive that protection while their neighbours Dominica and St. Lucia do not.

I want to remind your Lordships that 70 per cent. of the export earnings of Dominica are from bananas and 30 per cent. of its workforce are employed in the banana industry. In the case of St. Lucia, 60 per cent. of its export earnings come from bananas despite the fact that it has a thriving tourist industry. I am told—or I may have read somewhere—that it is the Government's view that the loss of earnings can be met from the STABEX fund. But the demands on STABEX, as your Lordships will be aware, cover a wide range of primary products and 69 ACP countries. They always exceed the funds available. In a Written Answer the Minister confirmed that the highest percentage of loss it has ever met is 43 per cent. Therefore, to suggest that these poor farmers' needs can be met through the STABEX fund is simply insulting them. In any case, the Commission proposal explicitly states that the aid would be payable only if, and to the extent that, losses could not be covered by STABEX. Therefore, the idea of STABEX is—I do not want to use too strong a word—irrelevant.

The Commission proposal has a second facet. In addition to income support it offered technical and financial assistance to improve infrastructure, marketing and competitiveness in the EC banana industry. That is particularly necessary in the present circumstances and, frankly, it would be essential if the regime were ever to unravel—and it might. In any case, it is a definite requirement if those countries are to try to diversify their economy.

The proposed aims could also help to bring about improvements which are urgently needed in some ACP states if they are to attain their place in a more competitive market and so help to narrow the gap which exists between them and the dollar banana producers. The dollar banana producers are based on large estates owned by multinationals whereas the Windward Islands producers are peasant farmers operating on small estates.

It is suggested that there are ample unused funds in the Lomé Development Fund. I have heard that one too. But since the regional funds were specifically refused in respect of banana products on the grounds that they would be separately catered for under the Commission's proposals, the poor banana producers have fallen between two stools.

ACP countries firmly believed—I stress the fact—that the Commission proposal, comprising both technical and financial aid, in order to make them more competitive, together with emergency income support, formed part of the total package that was being offered as the new means of safeguarding the traditional advantages assured to them under Lomé IV, certainly for as long as it lasted; at least until the year 2000.

Without the safety net of emergency income support, the Lomé commitment is not met because there ceases to be any reliable way of ensuring the economic return that these countries and these farmers had available to them under the nationally managed markets. That is a fact.

I hope that when the Minister replies she will assure your Lordships that the Government have given further thought to this matter and have recognised the necessity of supporting the Commission proposal in the Council of Ministers and that they will press for its acceptance when the Council of Ministers next meets. I await her reply in hope and expectation.

6.53 p.m.

Lord Palmer

My Lords, that was indeed a powerful, emotional and extremely strong speech, and I, too, eagerly await the noble Baroness's reply. I am grateful to the noble Lord, Lord Pitt, for asking this Question tonight and for explaining the situation so extremely carefully and with such thorough understanding of the problem.

It has, as some of your Lordships are no doubt aware, been no secret that since July last year things have been far from right in the ACP countries, and having just returned from a trip to St. Lucia, where I had the chance of meeting many farmers, I am appalled to realise how extremely serious the situation has become. I feel I must declare an interest in that I have just discovered that I am a residual beneficiary in a large, albeit non-productive, banana plantation on the island of St. Lucia.

All members of the Lomé IV Convention realise that they must diversify, but that that diversification must be on the back of banana production. That is why I feel that the European Commission's technical aid and income support is so vital. What it is important to remember is the vast difference in yield per acre between the ACP producers and the dollar banana producing countries. The noble Lord, Lord Pitt, mentioned the difference and the economic scale of the dollar banana producing countries. They can often out yield the ACP producers by as much as two and a half times—two and a half times, my Lords.

The figures in cash terms are, I believe, even more horrific. To date, the Windward Islands' income from bananas has fallen by over 100,000,000 EC dollars. Put into people terms, that is a drop of just over 1,000 East Caribbean dollars for every single inhabitant on the island of St. Lucia; over 1,000 dollars, my Lords. When viewed in this perspective, I do hope that the noble Baroness realises how serious the problem is, especially when St. Lucia accounts for 12 per cent. of all ACP production. Thirty-five per cent. of the population of St. Lucia is directly involved in banana production. The aid from the European Commission is desperately needed to improve the infrastructure, to set up reception centres and to finance irrigation. I was fortunate enough to travel the length and breadth of the island and saw at first-hand how vitally this aid is needed.

When the noble Baroness comes to reply, I do hope that she will be able to explain why the French Caribbean islands and the Canaries are being subsidised through their mother countries and through the European Union. If France can, for example, as the noble Lord, Lord Pitt, mentioned, claim that Guadeloupe is part of the Massif Central, surely we have the basis and the right to claim that St. Lucia is part of the Outer Hebrides.

I would also like to ask the noble Baroness why it was that France was able to refuse entry to Cameroon fruit last year, and yet Britain accepted it, which of course still further drove the price down. Will she be able to give an assurance that this will not happen again?

I fear it is a frightening statistic that today a St. Lucian farmer is receiving six pence a pound for his bananas; at lunchtime today bananas were selling on Ox ford Street at 80 pence per pound.

The noble Baroness is much loved and respected throughout the developing world, and especially in the Caribbean, as my meeting only last Friday with the St. Lucian Minister of Agriculture, Mr. D'Auvergne, so evidently proved. I do so hope that tonight she will be able to demonstrate how well deserved that respect is.

6.57 p.m.

Lard Rea

My Lords, I am fully aware that this is a technical area of some complexity, with a number of conflicting interests involved. My noble friend Lord Pitt has explained to your Lordships the details of the situation in a very clear way. A possible solution to the problem, or at least an alleviation of the symptoms, is, as he has pointed out and as the noble Lord, Lord Palmer, has pointed out, tantalisingly close.

I am concerned that the late 1990s do not turn out to be as disastrous for the ACP banana producing countries —especially those in the Caribbean—as the 1980s and, sadly still, the 1990s have been for Africa, with an increase in poverty, child malnutrition and a contraction, if not collapse, of health and education services.

My concern also stretches to the banana plantation workers in Latin America, the producers of the so-called dollar banana—which I gather is unfortunately the same shape as an ordinary banana—who have wretched living conditions and even lower incomes than the Caribbean banana farmers, a high proportion of whom are small, independent producers, many owning their own land.

The economic situation of the Windward Islands' banana producers is dire at present, as both noble Lords have pointed out very clearly, with prices well below the cost of production. This means that debts are increasing. They are already high as a result of the devaluation of sterling one-and-a-half years ago; inputs of fertiliser and pesticides are running out, or running down; and a vicious circle has started in which the crop yield will fall and the situation become worse. Intervention now is necessary to stop this.

I think it is understood in the Caribbean that. the secure protected system under Lomé of the past few decades is unlikely to persist. Higher productivity, increased local food production and diversification of the economy will be necessary but that will take time —a decade, probably more. It will be a hard ride. Initial steps have been taken through SPAT (Small Projects Assistance Team) in Dominica to get alternative industries off the ground. I gather that there are similar organisations in the other islands.

What puzzles my noble friend and those who support him in this Unstarred Question is why the terms of the 1993/404 settlement, which has been referred to, cannot be enacted, particularly those parts which provide interim price supports. I gather that the agreement only scraped through in Brussels by a whisker, but is that a reason for delaying that part of it which can give a life-saving interim boost to several small, dying economies? As my noble friend has pointed out, it is apparent that because the banana growers of Martinique and Guadeloupe are regarded as part of the Massif Central and also Spain with the Canary Islands, they are already getting assistance. I am not sure whether that assistance comes through the European Union or directly from France and Spain. That is not clear, and perhaps the noble Baroness can elucidate the point.

As other noble Lords have pointed out, it is quite unfair that British Commonwealth territories are less well treated. The only reason I can think of for this is. that perhaps they consistently makes fools of us at cricket. But to treat them in this way is definitely not cricket.

My noble friend Lord Pitt has quoted a Written Answer given to him by the noble Earl, Lord Howe. Perhaps I may quote the words of a Written Answer given by the noble Baroness on 28th February: There are funds for financial and technical assistance which could be used to strengthen the industry, in the 1994 EC budget." —[Official Report, 28/2/94; col. WA 64]. Previously, Mr. Lennox-Boyd had said: We are working close with the Commission to assess how these [funds] can best be used to assist the [ACP]".—[Official Report, Commons, 15/2/94; col. 737.] I am sure that the noble Baroness will give reasons why no action has yet been taken—possibly due to the problem of the size of the dollar banana quoted for Europe (at present still under discussion) and the conflict between Lomé and the 404 agreement with GATT. But that should not prevent interim price support or other assistance being provided as an emergency measure.

I should also like to draw attention to the lot of the plantation workers of Latin America. In many ways their situation is worse than that of Caribbean growers. They have always received a smaller proportion of the final price of bananas-7 per cent. as compared with 10 per cent. for Caribbean growers. Many are now out of a job as a result of tumbling prices. Large-scale growers in dollar areas gambled on a large Eastern European and European Union market which has not materialised. Although their prices are lower than those of Caribbean growers, the plantations are in great difficulty. As well as helping the Caribbean, I feel that means should be found to assist destitute plantation workers in Latin America, possibly by the generous funding of local NGOs who will see that the aid reaches those who need it. That was suggested by Christian Aid. One way of generating such funds could be by recycling the tariffs gained for "over quota" imports of bananas from those countries.

To conclude, I can do no worse than to give the way forward as suggested by Christian Aid. They believe that the United Kingdom and the European Union should provide effective protection to small-scale farmers; provide transitional price support; provide support to increase the efficiency of the Windward Islands banana industry; include clauses to embrace social and environmental conditions in banana production in all exporting countries; and support diversification away from bananas. Like both noble Lords who have spoken before me, I very much hope that the noble Baroness will be able to give some good news when she answers.

7.5 p.m.

Viscount Waverley

My Lords, the main thrust of my contribution has been touched upon in differing ways. I would respectfully suggest that what might be criticised as duplication tonight must be perceived as emphasis.

As has already been made clear, the Community Banana Regime, Regulation 404/93, fixes a quota on cheaper Latin American bananas. It applies an import licensing system, imposed in a relatively arbitrary fashion, which appears to favour existing companies trading in ACP fruit. The underlying rationale for this regime is a protocol in the Lomé Convention, Lomé IV, which has been outlined by the noble Lord, Lord Pitt.

Her Majesty's Government has an excellent record of support for Caribbean and other ACP interests. The United Kingdom traditionally has made special provision to secure a viable outlet in its marketplace for Caribbean bananas. In 1992, during the long and difficult negotiations in the EC to replace national arrangements with a single market regime for bananas, Her Majesty's Government went to great lengths, in its role as president, to try to secure a Community regime designed to safeguard ACP interests. Yet, regrettably, the same Government are now perceived by the ACP, in particular by our Commonwealth friends in the Caribbean, as blocking the fulfilment of the European Union's binding commitment under Lomé IV.

The regime was explicitly intended to secure, through tariff quotas, an economic return comparable with that which they had previously enjoyed under bilateral arrangements. Because of the risks that that would not be achieved, the European Commission proposed a system of emergency income support to apply if the market was disrupted. This would prevent any loss of revenue which small-scale producers would find difficult to sustain. Such income aid—a proposal explicitly stated by the Commission—would be paid only if prices fell and only to the extent that the resulting loss was not met by STABEX.

What if the funds are not available? It is held that STABEX is bankrupt. The highest loss that it has ever met is 43 per cent. Caribbean producers suffered a severe loss of earnings at the end of last year but continue to be denied income aid. Yet emergency income support has been approved for the benefit of the European Union's own producers in Guadeloupe and Martinique, who are thereby protected against the effect of the market's collapse. That is the problem.

I now ask Her Majesty's Government to consider and comment on the following: first, the offer of technical aid to assist in a realistic and intense scrutiny of the overall viability of the industry. The levels to which production costs could be lowered visa vis Latin producers, and whether subsidies are a disincentive to cost-effective production would be questions fundamental to such a feasibility assessment.

If bananas are not the answer, then realistic alternatives must be found to permit diversification, and sufficient time and assistance offered to realise such far-reaching changes. Long-term solutions covering 25 and 50 years are what is required. Mercifully, the current regime could allow for this period of transition.

Secondly, will the Government consider approving the release of income support? Vital and welcome long-term measures would not dispense with the need for immediate income support for the short term to mitigate the effect of market disturbance resulting from the transition to the new regime.

Thirdly, will the Government ensure that an equitable solution is found to the issues surrounding percentage share between latin and ACP producers? Latin production is operated principally by American multi-nationals which control over 70 per cent. of the world market and nearly two-thirds of the European Union market. The current ACP percentage of the Community market is a mere 17.5 per cent. Once an agreement is reached, immediate and unstinting support must be forthcoming.

Fourthly, and possibly a little controversially, I ask the Government to watch closely to ensure a sense of fair play between banana traders, who must not benefit unduly from the industry when farmers are suffering from a downturn in the market.

It must be recognised that while some companies may on occasion step into the breach to support the industry, concerns persist that the regime is too protective of traders who traditionally deal in ACP fruit. It is the farmers who must receive just deserts for their labour. I ask Her Majesty's Government to do what they can to ensure that farmers are adequately compensated. I realise this would be interfering in commercial activities, but I ask the Government to do what they can.

Finally, I bring to the Government's attention that their position has a negative impact in the Council of Ministers. It is clear that there is little hope of securing support for these measures from other member states while Her Majesty's Government remain opposed. Yet without these measures, the Caribbean producers no longer have the traditional advantages guaranteed to them under Protocol 5 of the Lomé Convention.

Also incorporated into the aid question is the need to resolve transferability issues, probably on a regional or even sub-regional basis. Caribbean nations are susceptible to force majeure in the form of hurricanes and drought which devastate monocrop economies. It is often said that on some issues it would facilitate the European Commission if the ACP countries could agree among themselves internally, at least regionally, on an acceptable formula on the question of transferability.

The Caribbean, like the rest of the ACP, is not a homogeneous area where blanket solutions and joint decisions can be expected. The banana industry in each country is at a different stage of development, with differing problems and requirements. The impact of production failure or quota loss varies for each. The difficulties of the Windward Islands differ from those of Jamaica, and in turn from those of Belize.

At this point, it would be entirely appropriate to declare an interest, albeit non-pecuniary, in that Lady Waverley is the High Commissioner for Belize. My interest is of course to see a just outcome for all ACP banana-producing countries. However, I propose to surnmarise Belize's difficulties to illustrate the point.

Belize's quota ceiling has not catered for investments already in the pipeline. Investments had been undertaken from 1986, with help from various aid agencies, including the Commonwealth Development Corporation and the European Community's development fund. This was to develop both production and deep water port facilities to a level which ensures the viability of rapid weekly shipments to the UK by large vessels, and therefore optimum quality on arrival. Unfortunately, Belize's permitted maximum quantity (at 40,000 tons annually) is now well below the viable level, so that the main objective of the investment is frustrated and current production cannot all be shipped.

The Council agreed that, the aids provided in Article 12 of the Commission's proposal, and in the parallel proposal for the ACP, provide the necessary flexibility to cope wilt any unexpected development". The Council also noted that, in cases where it can be shown that investment has already been committed to a programme of expanding production, a higher quota may be set for that ACP state". I believe Belize has shown this to be the case.

A potentially disastrous summer is about to befall that country: there is a pressing need to meet interest payments on an under-utilised port; quotas have been over-utilised, and future shipments will be penalised. This situation coincides with the severe loss of earnings occasioned by the withdrawal of British troops from Belize, which began on 1st January this year—a loss of some £20 million per year, a substantial portion of the gross domestic product.

The banana problem threatens to be financially disastrous: more than 800 people are set to lose their jobs immediately, and a once thriving industry will founder. As any farmer will tell us, once soil conditions and production standards fall, the corresponding efforts required to restore viability increase dramatically. That illustrates the individuality of each country's set of circumstances.

Banana exports to the European Union are of major economic importance for all the Caribbean producers, and for some they represent as much as 60 per cent. of all export earnings. The losses already sustained and the continuing uncertainty about the future are causing grave concern and risk provoking civil unrest, as evidenced recently in St. Lucia.

I hope that Her Majesty's Government will offer the necessary assurances tonight and outline the conditions needed to bring these about. My Lords, justice must be done! Finally, I should like to thank the noble Lord, Lord Pitt, for tabling this Unstarred Question, and to commend him on his valuable and lucid exposition of this important issue.

7.18 p.m.

Lord Redesdale

My Lords, I too should like to thank the noble Lord, Lord Pitt, for raising this issue. My experience with bananas has been limited to Malawi, where I harvested them for a couple of weeks and ate them for the same period.

Although I respect the Minister greatly, unlike some people I do not believe that she can control the world supply of bananas. I believe that market forces are partly to blame. However, like many noble Lords, I ask the Minister to explain why the Government have not lived up to their commitments to Commonwealth countries and vulnerable ACP countries which are banana producers.

The fourth Lomé Convention was designed explicitly to give some reassurance to ACP countries that their traditional produce (bananas) would continue to receive an economic return in European Union markets. When the price collapsed in the Caribbean markets, under the Lomé Convention the European Commission drew up some proposals for income support. It seems strange then that the UK to which many countries, especially in the Caribbean, look first for support, refused to agree to the Commission's proposals, giving other European Union members a pretext for rejecting them too—a point made by the noble Viscount, Lord Waverley.

The reasons for failing to support the Commission's proposals seem inconsistent. In Written Answers the Minister has said that the STABEX fund would be able to compensate for the shortfall in income. However, as the noble Lord, Lord Pitt, pointed out, the STABEX fund has never managed to match more than 43 per cent. of the shortfall. A Written Question put down by the noble Viscount, Lord Waverley, relating to the Commission's proposals was answered by the Minister who said that we could not support inefficient banana-growing countries. However, without support, there is no way that those banana-producing countries can change their production methods. Also, as the noble Lords, Lord Palmer and Lord Rea, pointed out, farmers in Caribbean countries are facing enormous hardships. One of the points that must be highlighted is that that situation is bound to deteriorate as in Latin America vast areas of flat land are used to produce bananas. There are some plantations as big as 250,000 acres. They are highly mechanised and irrigated. Their soils give double the yield of those of the Caribbean countries.

In those circumstances, the Latin American countries are producing bananas far more cheaply than the Caribbean countries will ever manage to do. I hope that the Minister will be able to give some assurance that she will be supporting the European Commission's proposals.

7.23 p.m.

Lord Carter

My Lords, like other speakers I thank my noble friend Lord Pitt for putting down this Question. The details of the subject have been well covered, and I have no wish to rehearse the arguments which have already been advanced. The debate illustrates the general point about both GATT and the single European market. We know that GATT is not designed to help the poorer countries in the world—a point largely ignored by the free market and the free trade ideologues. The experience of the ACP countries bears that out.

To illustrate the background to the debate I should like to quote some figures prepared by the OECD, giving a calculation of the annual global gains by 2002 in billions of dollars as a result of a successful GATT settlement. The figures show that the gain annually to the European Union and the EFTA countries together amounts to 94 billion dollars; to China, which is curiously second, it amounts to 37 billion; to Japan it is 26 billion; to upper income Asia it is 21 billion; and to the USA 19 billion. We can compare that with the calculation of the gain to low-income Asia, which is 2 billion, and the loss to Africa which amounts to 3 billion. Obviously we all understand that calculations of that nature are as heroic as the assumptions upon which they are based, but they illustrate the problem that we are discussing: GATT, and what flows from it, is largely a rich country scheme. For the poorer countries, as the figures show, the gains are either small or there is a loss.

As a result the ACP countries and the poorer countries producing dollar bananas are left to fight one another in a disrupted market. The system for bananas —before the combination of GATT and the single market produced the current crisis—although certainly not perfect worked reasonably well. The ACP countries had a guarantee of a market at reasonable prices and, as my noble friend Lord Pitt said, it was a managed market. Other speakers have made the point well, and I have no wish to repeat it, in relation to banana growing, especially in the Caribbean. It was the nature of the banana-growing system which engendered the marketing system that was in force.

However, as we are discovering to our cost in agriculture generally, the ideology of the single market and the free trade liberalism of GATT are a powerful force in helping the strong at the expense of the weak, as the OECD figures I quoted earlier show clearly. What is so alarming and disturbing about the present situation in bananas is that before the ink is dry on the agreement regarding the crop, and before its effects can be determined properly, the member governments of the Union are already renegotiating in the midst of a highly disrupted market. We understand that the 2 million tonne quota for the non-ACP countries is already being negotiated upwards. There are objections to the proportion of licences for the import of dollar bananas allocated to banana importers in the ACP countries. Those objections were almost certainly prompted by the three multinationals which control 60 per cent. to 70 per cent. of the world market.

As we have heard, the income aid originally proposed has not been forthcoming. As has been pointed out, we can imagine the frustration in a tiny, poor country like Dominica when aid is denied to it but it sees income aid going to Martinique and Guadeloupe. They are immediate neighbours and their growing conditions and problems are the same. Will the Minister tell the House whether agreement has now been reached between the Commission, on behalf of the European Union, and the Latin American countries? If so, what does that agreement entail, and how does it relate to GATT? Has there been a reduction in the tariff preference for ACP banana producers and a further increase in the dollar quota? If there has, the argument for income aid is overwhelming.

I say in passing that the collapse in the first-hand price of bananas was reflected to some extent in the shops, with a reduction in 1993 of about 20 per cent. in supermarket prices, although it is unclear how much of that was due to the reduction in wholesale prices and how much to the price war among the supermarkets, with bananas perhaps being used as a loss leader. Will the Minister tell the House why, in the event, the Government did not support the income aid proposals which were a part of the scheme proposed in 1992 under the UK presidency of the EC? We supported them at the outset, and then support was withdrawn when the Commission's proposal reached the Council of Ministers. As we have already heard, the demand for funds from STABEX always outstrips available resources, and the aid proposed originally by the Commission was only for losses not covered by STABEX. So why did the Government resist the aid proposal in the first place? What would be the cost now of providing the income aid to the ACP countries as originally proposed by the Commission? How much aid is available for allocation to the ACP countries in the Lome Development Fund? Does the Minister also agree that the commitment in Lome has not been met so far as concerns the ACP banana producers? What proposals do the Government have to see that the commitment is met?

I am sure that the Minister will say that restructuring and diversification are important, and indeed they are. However, it is hard to restructure and to diversify if you are rapidly going bankrupt. What are the real possibilities of alternative crops for the small family farmers who produce bananas? Where are the transitional measures to promote stability, as promised?

I said that I would be brief because the points have been well covered. It is clear that the absence of income support and assistance with restructuring, in particular in the more vulnerable Caribbean islands, is causing severe hardship. It is essential that the European Union recognises its responsibility in this matter and approves without further delay the aid that is so badly needed. If it does not, there is a real risk that the GATT agreement will fall apart and ACP suppliers will be marginalised in an all-out banana war. We all know the power of the multi-nationals which have ability to exercise predatory pricing and to flood the market if it suits them. With other noble Lords, I hope that the Minister will assure the House that action is envisaged which will help to solve this difficult problem.

7.30 p.m.

The Minister of State, Foreign and Commonwealth Office (Baroness Chalker of Wallasey)

My Lords, I have listened to the debate with great interest. I thank and warmly congratulate the noble Lord, Lord Pitt, on introducing the Question tonight. It is such an important question for the Caribbean producers. I also wish to pay tribute to the noble Lord, Lord Pitt, for all that he has done in this House for the interests of the Caribbean

Noble Lords

Hear, hear!

Baroness Chalker of Wallasey

My Lords, he has tried to bring a little light not only to the banana regime but to the needs of other Caribbean producers, be they of rum or sugar—what I genuinely refer to as the Lome cocktail. No one has been better at mixing it than the noble Lord, Lord Pitt, in the best possible way.

We have long understood the critical importance of the British obligations to the Caribbean banana producers. In 1973 they became Community obligations under the Lome Convention. We have fought hard to maintain these commitments because we recognise the vital importance of the banana industry, in particular in the Windward Islands. We played a major role in defending African, Caribbean and Pacific interests during the negotiations for the Community banana regime under the single market. I too know—I have seen and heard at first hand on several occasions—of the needs of the banana growers and the hardships that the Caribbean producers are facing. I visited Dominica only last month and talk regularly with Dame Eugenia Charles, the Prime Minister.

One of the aspects that strikes one on every occasion that one looks at the Windward production is the dominance of banana growth and the fact that the necessary diversification will in some of those islands be hard to achieve. We have for a long time been supporting research into other crops; in Dominica, for instance. I shall say a few more words about that later. Ever since the discussions in 1992 we have not been standing still in trying to resolve the Community banana regime under the single market.

As the noble Lord, Lord Pitt, said, our opposition to the Commission proposal for technical assistance and income support has disappointed people. That is mainly because they have not understood the reason for that opposition. The reason is that it was the wrong proposal and as it stood it would not have achieved for the future what every Caribbean producer believes to be right; that is, to help them moclernise and reform the industry. The Commission proposal as it stood was a sticking plaster approach which would have kept producers afloat for a few more years. However, it would have only postponed the collapse of the industry because the Windward Islands are the most vulnerable producers of all. I have always had their needs uppermost in my mind in our discussions about what needs to be done.

What have we been doing? We have been arguing for a more radical approach to be built around restructuring the industry; giving the industry the help that it tells me and Dame Eugenia it needs. Tonight I am pleased to be able to report that at last we are making good progress. Yesterday we told the European Commission that the United Kingdom would be prepared to lift its opposition to the proposal if it would agree to amend it:in a way that would clearly link it to an overall reform policy for the banana industry, which emphasised the importance of diversification and modernisation. The Commission is now considering that favourably and I hope that it will form the basis for a breakthrough.

It would mean an amendment to the proposal for assistance to the ACP, which the Commission made in 1992. This would make it clear that any country wishing to claim support following a shortfall on its banana income would have to explain not only what had caused. the shortfall, but what policies the producer was following to rectify the problems. Any funds provided would then be used only within a framework of a. consistent reform policy in the banana sector to sustain the economic viability of production or assist adjustment operations to restructure production and export activities.

In short, that would mean that all the funds would be used to improve efficiency and quality or to provide other means of employment, and that there would be no danger of simply propping up those industries which are currently inefficient. Frankly, that was what was wrong with the proposal as it stood.

The noble Viscount, Lord Waverley, asked about technical help. We are already involved in giving technical assistance to the Organisation of Eastern Caribbean States in order to help it draw up terms of reference for a consultancy to advise on restructuring the Windwards' industry. My officials have already held discussions with the Commission, the Caribbean Development Bank and the OECS and that is being taken forward urgently. That comes after many years of advice about the banana crop and about other crops which could be grown instead.

One of the reasons why that Commission proposal was truly unacceptable was that it risked hindering rather than helping the long-term future of the Caribbean banana industry. As the noble Lord, Lord Pitt, knows only too well, it is the long-term future which needs to be safeguarded and not just a year, or two. The EC proposal contained only short-term compensation, which would be a disincentive to the fundamental changes that all noble Lords realise are necessary.

For the sake of the Windward Islands and other producers we were right to oppose the Commission proposal. But we were not the only country to oppose. The Commission proposal had met with widespread opposition. It may have been for other reasons, as noble Lords have said, but Germany, the Netherlands, Belgium and initially Denmark opposed the proposal from the Commission. That was partly due to the fact that they have a fundamental opposition to the single market banana regime and the protection that it offers to the ACP. It is true that Denmark subsequently withdrew its reserve, but Spain stated that it would support the proposal only if a parallel proposal for support to Latin American producers was also agreed. I shall return to that point a little later.

In the past few moments I have sought to say that we have been working fairly hard behind the scenes because we realise how important all this is. That work has been done not only in London and Brussels, but my officials in the Caribbean have also worked closely with the governments of the Caribbean islands, the banana growers' associations and the Caribbean Development Bank to prepare the reform strategy and proposals for restructuring the industry. Even in the past two weeks, we have been having detailed discussions with the Commission. I now believe and hope that we shall see a swift response from all countries.

Lord Carter

My Lords, I thank the noble Baroness for giving way. Is it possible to assure the House that the total amount of aid under this extremely welcome proposal will be the same as would have been available under the Commission's original proposal?

Baroness Chalker of Wallasey

My Lords, the value of the original EC proposal was 220 million that is, about £170 million. I understand that that has been scaled down because of the late start of the regime, but the cost to us is about £20 million over three years. That would provide a real and lasting benefit. I shall be making sure that we help the Commission to persuade other member states that that is the right way to go because it is absolutely critical, both for the Caribbean producers and also for the British taxpayer or any Community taxpayer, that we use the money in a first-class way and not in the way that was originally proposed.

I believe that it is important to point out to your Lordships that income aid, which was mentioned also by the noble Viscount, Lord Waverley, for non-EC producers was certainly not part of the original single market deal reached under the UK presidency. Indeed, I hope that we can proceed, because until July 1993 we had separate arrangements for the import of bananas which were incompatible and did not help the producer countries. We have always had a commitment to make sure that all Caribbean bananas of marketable quality had an entry. That commitment predated our accession to the European Community.

I do not believe that I need to go into the EC banana regime which your Lordships obviously know and understand all too well. We still intend that ACP bananas shall enter the EC tariff-free up to the quantity that was previously exported to the EC. Latin American and ACP bananas above those traditional quantities are of course subject to tariffs and the licences to import the dollar bananas are and will be granted in proportion to the imports of ACP fruit. Therefore, all importers have an incentive to import ACP bananas. That is a good compromise, which is why we supported it. We had to consider not only the producer and consumer interests, but also we had to fit in with the GATT. That has not been easy but I believe that the ACP now has access to the whole EC market on preferential terms. We must rise to the challenge to help them take full advantage of that.

A number of questions were asked by your Lordships. The noble Lord, Lord Palmer, asked me why Martinique, Guadaloupe and the Canaries had different arrangements. Of course Martinique and Guadaloupe are part of metropolitan France and the Canaries are part of Spain. Independent Caribbean islands have a different relationship with Britain. Independent countries have to compete for bilateral aid from us; and of course we give them that too.

The noble Lord, Lord Palmer, asked also about France having excluded French West African fruit from the market last year. He asked why that had been diverted to the UK market. Some quantities of French West African fruit appeared on the UK market in the second half of last year, but I do not believe that that was because the fruit had been excluded from the French market. In practice the French market was presumably like any other previously regulated market and, just as in the UK, there was an over-supply in the second half of last year. As a result, we had Cameroon and Ivory Coast bananas in neighbouring markets such as our own.

The real problem was the failure of a development of a genuine single market for bananas in the early months of the regime and also the failure of ACP fruit to make headway in new markets such as Germany. Therefore, the Community markets were very unevenly supplied and both the United Kingdom and France were over-supplied. French West African fruit certainly had a disruptive effect. It is an irony that in Germany and Denmark, there were shortages of bananas at that time. That just shows what a crazy situation that is and why the overall regime must be strengthened and made to apply more openly.

The noble Viscount, Lord Waverley, asked about Belize, in which he naturally takes a particular interest. Indeed, it has a special problem. The quota that it was allocated did not take account of the new investments that Belize was making to increase its banana production. The quantities for each ACP's quota were agreed after discussions between the ACP countries themselves and the secretariat of the ACP group in Brussels and the Commission. I am not in a position to be certain which particular planned investments were taken into account in fixing a traditional quantity for Belize, but I can tell the noble Lord that the United Kingdom has worked hard to raise Belize's quota from 35,000 tonnes, to 40,000 tonnes. We support Belize's efforts to raise that further. That would include the projected increase in production from those investments.

Belize has understood very well that reopening that issue could have meant reopening the single market negotiations. That could have led, I suspect, to the collapse of what was a fairly delicately balanced package. If the GATT settlement leads to any reconsideration of the package, I assure the noble Viscount that Britain would support the inclusion of Belize's quota problems in that reconsideration.

The noble Lords, Lord Palmer, Lord Redesdale, and others talked about the deterioration in the position of the ACP banana producers since the introduction of the new regime. That regime was a good deal for the ACP countries because it provided new trade opportunities. But the difficulties to which the noble Lords, Lord Pitt and Lord Rea, referred arose because it is taking longer than anyone had hoped for a genuine single market in bananas to develop. I have referred already to the previously regulates markets in connection with the glut of West African bananas. It was certainly quite clear that the previously regulated markets, including Spain, were heavily oversupplied. As no headway was made in countries like Germany and possibly Holland as well, there were bound to be extremely depressed prices in a country like our own and, indeed, in France. In consequence, the returns to the Caribbean producers, which were already adversely affected by the currency changes to which the noble Lord, Lord Redesdale, referred, were extremely low.

There has also been turmoil in some production areas in the Caribbean and the changes in the growers' associations have produced instability. Therefore, there were many reasons for the instability but if anything, that underlines the need for us to take this opportunity to have a proper reform of the production of Caribbean bananas. It also underlines the need for a consistent quality if ACP fruit is to compete successfully in the demanding EC market. That is why we have talked about a substantial restructuring, not only to give a viable financial basis to the production but also to arrive at a better quality fruit to secure the markets.

Many questions were asked about the financing of the proposals. I have already referred to that aspect as regards the Caribbean in answer to the noble Lord, Lord Carter. The £20 million about which I spoke is in addition to our bilateral programme for the Caribbean. Of course, that programme is about £40 million a year to the independent Caribbean and the British Caribbean dependent territories. We are also giving substantial support to the region through the Commonwealth Development Corporation and our high level of support in per capita terms reflects the importance that we attach to our links with the Caribbean and all that its people are trying to do.

I should mention that the Latin American proposal from the Commission would give them up to £45 million over six years. The United Kingdom's share of that would be around £1 million. I know that the European Parliament has made provision in the 1994 budget for payments of about £7.5 million to the ACP for 1994.

I hope that the first funds for compensation to the ACP will be disbursed early in the course of 1994; that is, if we can achieve a decision soon. Certainly, there are also European funds available for technical assistance. The one thing that we ask of the Caribbean countries is that their projects should be well designed. Obviously, it cannot all be done overnight, but it does need to be done carefully. I have already spoken of our work with the producers.

There are other sources of help for the ACP producers. For example, compensation for losses of export earnings is available through the STABEX scheme under the Lome Convention. The conditionality of STABEX is good, but the problem is that it has not always gone to the people who most deserve it. We shall ensure that the available funds from the European Development Fund for diversification are well used. Certainly what is good about the position that we have: now reached is that most of the banana producing countries have made large provision in their national indicative programmes for agricultural diversification. Combined with the help from the European Commission, that really will help us move forward.

Obviously, there are also questions about aid to Latin American producers. The Commission's parallel package has not yet been finally agreed. I believe that the Commission wishes to bring both packages together. There is no doubt that the position of the Latin American producers will be strengthened further in the search for a GATT settlement. After all, as the noble Lord, Lord Redesdale, indicated when he referred to the flat land and the large acreage which can be produced, they are high quality, low-cost producers. However, there may be a need for some limited assistance to Latin American producers, but that will not be at the expense of ACP producers.

The noble Lords, Lord Rea and Lord Carter, asked about GATT aspects. Of course, we have been disappointed by some of the developments in GA TT —for example, the very fact that some Latin American countries challenged the EC single market regime. The Community's attempts to reach a compromise failed to prevent the publication of the GATT panel report that criticised several key aspects of the regime and could undermine the position of the ACP in the longer term if we were not to act in the way that I have suggested tonight.

We must wait patiently for the outcome of the talks between the Commission and the Latin American suppliers. Such talks continue this week. I know that there is a danger in all of that; but, as I said, if concessions are made we must ensure that the Commission takes account of their adverse impact on the ACP and that those concerned are in no way harmed.

The noble Lord, Lord Carter, made a further comment to which I must respond. He said that GATT was harmful to the developing countries. I often hear that allegation. It will not be bad for those developing countries which want to trade to have the beneficial effects of freer world trade. In the long term, it will be a benefit for all. I say that because generalised prosperity will help to offset the short-term negative effects. However, the longer-term effects are currently much harder to quantify. Those who have sought to do so have not always, if I may say so, done so with an independent mind.

Lord Carter

My Lords, is the Minister saying that the OECD is not independent?

Baroness Chalker of Wallasey

My Lords, several estimates have been made of what would happen. However, even some of the OECD commentators do not believe that they have a final answer. Indeed, it will take several years before it is quantifiable.

We have debated many important issues tonight. I trust it is now clear that Britain has its obligations to the Caribbean very much at the top of its priority list. Equally, the way in which we have had to go about that should not be seen as an attack on the so-called "dollar producers" in Central America. It is simply that we recognise the vulnerability of the ACP producers. We are determined to help them become more competitive so as to have a better business. Our concern with compensation is that it should be used to put the ACP producers on a viable footing for the future. I am pleased that we are now in a position to use the EC assistance in order to do so. I hope very much that I shall shortly be able to bring a revised proposal back from Brussels. With the close co-operation that we already enjoy with the ACP, we shall help to achieve real and lasting positive change.