CAP Reform: ECC Report

HL Deb 18 May 1998 vol 589 cc1390-432

10.1 p.m.

Lord Reay

rose to move, That this House take note of the Report of the European Communities Committee on CAP Reform in Agenda 2000—The transition to competition: measures for rural development and the rural environment (18th Report, HL Paper 84).

The noble Lord said: My Lords, I start by declaring an interest as a farmer. Next I thank the other members of Sub-Committee D for their assiduous work in conducting our inquiry into rural policy in the light of Agenda 2000. The amount of reading provided was—as is so often the case—gargantuan, and they accomplished prodigies of assimilation in preparing a report which covers in effect several disciplines. I also express my gratitude to all those who provided us with the evidence, both written and oral, without which the inquiry could not have begun, and which was often outstanding. As usual, they all gave up valuable time without demur.

Finally, I thank the two men who worked harder on the report than any others: first, the redoubtable Professor John Marsh CBE, just retired from Reading University, with whom it is always such a pleasure to work, who has done so much to help Lords' committees over the years, and whose brilliant clarity of thought and expression, while sometimes soaring out of the reach of mortal committee members, nevertheless eventually enables us all to find within ourselves opinions we never knew we held. Secondly, at the opposite end of his career, I thank our clerk, Andrew Mackersie, fresh out of Oxford University, for whom this report was a baptism, gruelling but I hope instructive, into the conduct of inquiries and the writing of Lords' committee reports, and from which he happily emerged with, as far as I could tell, undiminished enthusiasm and resilience.

I am sorry that a report of such scope as this, touching as it does one of the most fundamental problems facing Europe, is not being taken as first business in your Lordships' House. Faced with the choice between an earlier time, but not until the autumn, and this evening's position, ahead of next week's Agricultural Ministers' Council, when "preliminary conclusions" are due to be reached on the Agenda 2000 proposals, it seemed on balance preferable to have the debate tonight. But this outcome is far from ideal, and undoubtedly deprives the House and a wider public of the considered views of some of those who have thought hardest and longest on the subject.

The main focus of this report is on the environmental and rural aspects of the European Commission's Agenda 2000 proposals, which were first introduced to the world in Brussels last July. Thin in themselves, they nevertheless seem to be a pointer to what was likely to become an increasingly important aspect of or adjunct to any further reforms of the CAP: environmental measures to provide a more acceptable method of making public funds available to farmers and other land managers in the countryside than are CAP payments today; and the focused development of the rural economy to provide a necessary counterweight to balance any loss of employment in, and withdrawal of capital from, farming which might come about as a result of further CAP reform.

In preparing our report, we did not look in any depth into Agenda 2000's central product-related proposals, which at the time were being considered by the Select Committee on Agriculture in another place. We welcome, however, those proposals as a development of the 1992 MocSharry reforms and a further step towards a more liberal market-orientated CAP. Nevertheless, we express our disappointment that they do not go further than they do. Their failure to prepare the Community's agriculture either for enlargement or for the next WTO round will only mean, in our view, that further reform will he required later, with all the turmoil and misdirected investment that this promises for years ahead.

We were particularly dismayed that no end is discussed for quotas and no suggestion made that compensation payments should be either degressive or finite. We also record our objection to the Commission's proposals for modulation and for ceilings. The Commission's proposals for work-unit related modulation and for payment ceilings for individual farmers, apart from penalising this country's interests, also run counter to the spirit of encouraging efficiency, which after all purports to be the main guiding principle of the reforms.

The Government, however, have been reported in Agra Europe as having said that they "might be ready to consider an approach based on subsidiarity", which would allow member states to set their own ceilings. This, I must say, causes me some concern and I should be grateful if the Minister could say why this would make a policy of modulation any more acceptable.

It must be said that the Commission's thinking has progressed immeasurably in recent years. The Commission talks the language today of CAP reform, and where it fails disappointingly to propose reform this seems to be the result of a political calculation of what the Council is ready to hear rather than any lack of awareness of what in truth is required. The Council's reactions to the Commission's proposals must only encourage the Commission to feel how right they were not to be more adventurous. The modesty of the Commission's reform proposals does not leave much scope for any dramatic switch of expenditure from farm support to other objectives. The Commission's plan for compensation payments for their proposed cuts in price support will result in an increase of some 4 billion ecu in the CAP budget before any additional funds are made available for environmental or other rural purposes.

Doubts about the scale of funds that can be made available in the foreseeable future for environmental purposes have led some to argue for the attachment of environmental conditions to existing arable area and headage payments. There are arguments for and against cross-compliance, as such conditionality is known, and they are set out at length in paragraphs 80 and 81 of the report.

The committee was united in its opposition to cross-compliance for the long term but, for some, the needs of the environment were too urgent to wait for the eventual release of funds from other sources and they would like to see environmental conditions attached to existing farm payments as an interim approach. However, the Sub-Committee as a whole was very concerned that attaching environmental conditions to existing CAP payments would only serve to compound the difficulty of reforming the CAP in the longer term by lending the current subsidy regime a false legitimacy.

Much of the opinion section of our report is concerned with setting out what we consider to be the principles and objectives which should lie behind the funding of rural development and the environment. We argue, for example, that the eventual emergence of savings on commodity regimes is not by itself an argument for spending more on environmental policy. Such an outcome must depend on political decisions taken at the appropriate level within the Community. We argue that there should be a basic minimum regulatory framework of environmental rules applied uniformly throughout the Community to avoid the distortion of competition, and on top of that that public payments to secure environmental goods can be paid.

We argue that Community co-financing is justified by Community interest; and that its degree should reflect the degree of Community interest and not, as often today, some cohesion policy objective as a result of which the Community co-finances at a higher rate in a member state with lower average GNP per capita. We argue that care should be taken to ensure that, as far as possible, schemes with an environmental objective are fully decoupled from production and do not form covert production subsidies. In place of today's bewildering array of schemes, we welcome the Commission's and the Government's intention to offer a single menu with a simplified access to European Union funding.

We are in favour of the idea of developing a horizontal approach, which means schemes in principle accessible to all farms and other land managers as opposed to schemes which are geographically targeted. We therefore very much support the Government in their stated intention to develop the Countryside Stewardship scheme as their main incentive programme. It is horizontal in application. It also has considerable scope for expansion. It covers less than 1 per cent. of all agricultural land in this country, compared with 10 per cent. covered under the 22 existing ESAs, which are of course geographically targeted. It is popular, with a high uptake and a backlog of apparently worthwhile applications for which funding is currently not available.

We also ask that EC co-financing should be available under the scheme for capital as well as current expenditure. Restriction to current expenditure has limited the Community contribution to Countryside Stewardship to less that 10 per cent. of total funds expended under the scheme.

We draw attention to the unsatisfactory state of policy confusion that operates with respect to Less Favoured Areas. Here, to offset natural handicaps, additional headage payments are made available, in this country under the Hill Livestock Compensatory Allowances, which simply encourage the overgrazing of a highly prized environment. The Commission now wishes to introduce specific environmental objectives for farmers in these areas. We believe that the public wish to see a living countryside in these regions, which means the survival of agriculture, and Community policy must allow that. It should be the task of Community policy makers ahead of the next WTO round to devise a policy for such areas that is environmentally friendly and permits the survival of extensive farming. I agree with the Government that subsidies for such areas can never be wholly decoupled, but it must be doubtful to say the least whether such farmers impinge to a great degree on world markets. WTO should turn a blind eye to them.

When it comes to rural development, we appreciated the Commission's intention to concentrate structural spending on a smaller percentage of the population, to be reduced from 51 per cent. to between 35 and 40 per cent., although we had a taste, in the tabloid reaction to the publication in March of the Commission's detailed implementing proposals, of how difficult it is to shift vested interests once they are established. Throughout the Community, press headlines in each member state concentrated on what that member state was likely to lose from the new proposals. The tendency of the Community subsidy regimes to establish powerful and vociferous clients whom it requires a giant effort of will ever to disappoint again in the future, is one of the more depressing recurrent features of the Community's agricultural and structural policies.

Of course experience in one part of the Community is often very different from that in another. In this country, our movement from the land took place in the 19th century. Our experience over the past three decades has been of a net immigration into the countryside, though that does not mean that rural areas, even in this country, are without problems and could not benefit from a well-targeted Community policy.

We have tried to put forward some constructive suggestions, mentioning tourism, local computer training courses, funding for travel to retraining courses, and the conversion of redundant post-war farm buildings for light industrial use as providing opportunities where progress might be made. On the last point in particular, we received compelling advice from Strutt & Parker, who provided us with outstandingly good evidence and in this instance recommended the Rural Development Commission, or what now survives of it, as an authority which could vet applications and stimulate planning bodies into a more sympathetic attitude.

Despite more liberal recent planning guidance such as is contained in PPG7, planning authorities are still widely viewed as being unnecessarily reluctant to grant planning permission in cases like this. The Government, incidentally, seemed to misunderstand us on this point. To the extent that we take up that suggestion, we emphatically are not proposing that a new agency should be established for the purpose, but that an existing agency should be considered for that responsibility.

We conclude by saying that any rural development policy should be temporary. I am glad to note that the Government agree with us on that point. While we welcome the intention of the Commission to give support for the rural economy instead of maintaining agricultural price support, nevertheless the test of the success of such policies is that eventually they should become unnecessary. It is the transition to a less agriculturally dependent rural economy that we have in mind to facilitate, not replacement of one dependency culture with another.

We were very much aware, while we conducted the inquiry, of the critical state in which British farming currently finds itself, largely as a result of the effect of the recent strength of sterling on subsidies calculated in ecus. However, it is to be hoped that that will not be a permanent phenomenon. Reform of the CAP remains essential, not least in order to give competitive agriculture, of which there is much in this country, unrestricted access to world markets.

A greater emphasis on the environment, supported by the transfer of funds saved by the reform of the commodity regimes, can both mitigate the effects of the introduction of a more competitive agriculture, where that occurs, and also support the environment and those who manage it in those areas where the withdrawal of support would not leave a viable agriculture. Support for rural development, both on and off farm, can help provide alternative economic opportunities in rural areas as agriculture is restructured.

Those are the directions for agricultural policy in the future, and it is encouraging to see the Commission at least address them. I only hope that the Council as a whole will follow its lead and, in so doing, encourage the Commission to be more adventurous next time. I beg to move.

Moved, That this House take note of the Report of the European Communities Committee on CAP Reform in Agenda 2000—The transition to competition: measures for rural development and the rural environment (18th Report, HL Paper 84).—(Lord Reay.)

10.19 p.m.

Baroness Young of Old Scone

My Lords, I begin by declaring an interest as the chairman of English Nature. I also commend the noble Lord, Lord Reay, for his excellent chairmanship of a rather intellectually unruly bunch. I think it was probably the intellectual equivalent of herding squirrels; however, he brought us through to a conclusion. Perhaps I may also join the noble Lord in his thanks to Andrew Mackersie for supporting us in his first duty as committee clerk. I also thank the Government for a very prompt response, though there are elements of it that perhaps many of us would take issue with.

The one thing that there is no doubt about is that agricultural policy in Europe is broken. In fact, the folly of the CAP strains the loyalty to the European ideal, even of Europhiles like me. Perhaps I may give two examples. The hill livestock compensation arrangements, to which the noble Lord, Lord Reay, referred, have not only reduced the number of jobs in the uplands and increased the level of overgrazing and environmental damage, they have also resulted in many of our upland farmers living on a subsistence income, with their only real profit being represented by subsidy.

In the richer arable areas we see huge reductions in the wealth of biodiversity. There is probably something like a 60 per cent. reduction in some of our bird, arable plant and invertebrate populations. That number is only narrowly missed by the reduction in farm incomes over the past 18 months. There is a long-term decline in the number of jobs in the countryside related to agriculture. We are in a position now where, probably for the first time, all farmers are miserable. We usually get to the point where some farmers, but not all, are miserable. We are now in a position where all farmers are miserable.

This is a policy that cannot be sustained. The Commission's proposals, alas, signal the right direction but do not do enough to take us very far. The approach outlined in the report—that is, market prices for commodities, with no direct subsidy and with separate decoupled payments for social and environmental benefits—is supported, but the Commission's proposals do not go far enough in that direction. They continue to indicate large sums of compensation wherever there is any approach towards a more market-related price. As a result, little is released for the kind of rural development and agri-environment schemes which we would want to see as a fundamental part of agricultural reform. The Government's response to the report recognised that.

Some opportunities have now been outlined in the more detailed work that the Commission has put forward. The idea of national envelopes in some of the commodity regimes would allow national redirection to rural development and environmental schemes and might even, I would advocate, allow some funds for smoothing the path of the restructuring of the agricultural industry in those areas. But, alas, those national envelopes do not refer to the sheep regime, which is comparatively unreformed.

There is to be reform of the less favoured areas, with a stronger emphasis, as the noble Lord, Lord Reay, pointed out, on environmental objectives, but again the fact that the sheep regime is largely untackled means that we shall continue to have thousands of woolly "maggots" in the uplands destroying the upland environment by overgrazing.

There is one element that only just scraped into the proposals by a squeak. It was not there at one point and only sterling work by the Government managed to bring it through. I refer to the requirement that the rural development regulation will be applicable not just to farmers but to a wider rural community. I hope that in the forthcoming months the Government will seek to ensure that that should remain, because I believe it will again be severely under stress.

The Commission's proposals do not go very far. They do not release much for environmental and social benefit. We shall have to wait for that for the next round of reform, which inevitably the world trade round will require. But we cannot wait that long. This will not be quick. The political reality of a fast approach to a genuinely market-led agricultural industry in this country will be very slow. We know that Germany is not even willing to talk until after its elections. The vested interests in both southern states that have received large quantities of structural funding and in France and Germany, where the farming lobby is extremely powerful, will mean that change will take a very long time.

In the meantime, the kind of social and environmental decline that we are seeing in the countryside will continue unabated. I do not believe that we can continue to see that happen. At present, only 3 per cent. of the agricultural budget is spent on environmental schemes. I believe that if we are to see continued payments in the medium term, particularly compensatory payments that will not reduce as quickly as all of us would like, some minimum environmental conditions must be applied to those to try to stop the decline that we see occurring day by day.

I recognise that it is difficult for the Government, in the delicate tactics of Europe, to demonstrate their hand too early on this matter, but I urge that they should keep very much at the back of their mind, if not at the forefront of their words, the view that, as soon as the dust has died down around this particular negotiation, it should press for environmental conditions to be placed on all medium-term payments to farmers.

An alternative would be regulation and the Government, in their response, talked of environmental regulation. Indeed, I have heard many farmers declare support for environmental regulation as a basic minimum rather than seeing conditions applied to compensation payments which, a few years ago, I would not have believed I could experience. However, the reality of minimum environmental regulation is that it would have to be minimum. It can deal with issues like pollution and water use, but not with fine tuning and the encouragement that incentive payments give, particularly in the field of biodiversity.

I therefore urge the Government, in taking forward these delicate negotiations in the European Union, to look seriously at environmental conditions as a measure for the medium term until such time as we reach market conditions. A number of things can be done in the negotiations, particularly at home on a domestic basis, to improve matters for the environment and for the social regeneration of our rural areas. But time is running out for both of those factors in the face of this juggernaut of European agricultural policy.

10.26 p.m.

Lord Mackie of Benshie

My Lords, first, I congratulate the committee, particularly the chairman, on the report. Naturally, because this is a complex subject, I do not agree with everything in the report, but it is thorough and goes over the ground extraordinarily well. One must agree with many of the conclusions.

The whole of the CAP has gone wrong. When the common agricultural policy was set up, it was set up with good objectives. There was a reasonable relationship between the Council and the Commission. Gradually, the Council destroyed the thinking of the Commission. Time and again in days gone by the Commission wanted to reduce prices in order to follow the market as well as guaranteeing a certain security. But the Council, led by France and Germany with large agricultural interests and a sympathetic attitude towards agriculture, went the opposite way. They put up prices and thereby raised all the stakes—the costs and everything else—with the result that an excellent policy, much needed at the time, has now been totally destroyed and people do not know what to do with it, including the Commission.

I doubt very much that the Commission will make a great deal of progress against Germany and France, which have such a close connection. Added to that is Austria, which has a problem with its small farms and tourist industry. It wants agricultural money to back that. It will be extraordinarily difficult. We have extraordinary policies, such as supporting the production of bad tobacco—all tobacco is bad, but the stuff that we are supporting is even worse. Money is being spent on that and we also have the ridiculous case of olive oil which is still ongoing. That is the subject of extraordinary deviations in relation to the purpose and direction in which the money goes.

I agree that we have a situation about which something must be done. The Commission produced a set of new objectives and they are right and proper. They are to increase competitiveness internally and externally in order to ensure that EU producers take full advantage of positive world market developments. Other objectives are improvements in food safety and food quality; the integration of environmental goals into the CAP; the creation of alternative job and income opportunities for farmers and their families; and the simplification of EU legislation. There is one that is not quoted in the report: ensuring a fair standard of living for the agricultural community and contributing to the stability of farm incomes. That is an important objective and one to which we really need to pay attention.

The noble Lord, Lord Reay, has already referred to the state of agriculture in this country. It is in a desperate state. Income has dropped by 45 per cent. and there is no question in my mind that a great many farmers will go out of business. They do not go bankrupt; they sell up and get out; but they get out with very little. The measures which have led to this are to a large extent the fault of the Government. They could not perhaps help the rise in the pound but they did not take as much advantage as they might of the funds available from the EC to alleviate the situation. If one bears in mind the fact that the high pound has made imports ridiculously cheap and that BSE has prohibited exports to our former customers, the situation has become really desperate for a large number of farmers.

People talk about competitiveness and the great opportunities that are available to farmers. However, as I have said in the House many times, in eastern Europe—in Hungary and Poland in particular—the standard of living is such that a man working in agriculture will be paid for four or five weeks with a tonne of barley, sold at the present price, whereas in this country it takes three tonnes of barley to pay a man for one week. That is not a competitive situation for the countryside.

We have to look at this business of total world competition. We had it in the 1920s and 1930s. This country had to compete with the prairies, with Australia and with the Argentine, and so there was a total break-down in agriculture. I doubt whether it did very much good. Primary producers' prices will fall in a free market to a degree which is not bearable for the good of the countryside or for the country as a whole. One needs some form of protection against the world's evils.

I agree that we have to become more competitive. There are many things that we can do. The farming community is paying close attention to marketing and the stock has been standardised so that people know exactly what they are buying. A great many of these things are happening now.

A lot of people are working very hard on making a living and doing a good job. I have a nextdoor neighbour with 50 acres of good land. He is making a living. He is doing that by diversification. He has turned part of his steading into loose boxes so that girls who have horses are able to stable them there and he receives an income from that. He grows turnips for marketing. He has an arrangement with a local man who has built up the market with the supermarkets. He has the proper standards. That brings my neighbour an income far above what he would get from growing normal crops on that portion of his farm. He has a flock of Suffolk Downs which are very good sheep. He sells a ram or two. On 50 acres he works like the devil and makes a living.

But not everyone can have Suffolk Downs or take in horses. Some people have to rely on the average crop of grain, potatoes or whatever it may be. Therefore, there have to be many part-time farmers in the country. If he has a good job to go to, the part-time farmer has a solution: he can enjoy his farm and make some money from it because his basic standard of living derives from elsewhere.

I have quoted examples on other occasions. The Highlands and Islands Development Corporation has shown what can be done. Today I received a paper from it which states that in the Western Isles 50 jobs will be created by the establishment of a tele service centre. I have no idea what that is, but if it provides 50 jobs in the Western Isles it is the sort of thing that needs to be encouraged.

People stress how important environmental payments are. They are important, but they cannot support the whole of agriculture. What does one do about the Fens? Does one give them environmental payments along with the uplands of Cumbria? Such payments cannot replace support of some sort for agriculture. Admittedly, I hope that the support will be only temporary, but it may not be all that temporary. Environmental payments are necessary, proper and well-directed expenditure but they cannot substitute for other forms of support.

It is interesting that the RSPB has produced a paper. Both it and the report say that some sort of order has to be introduced. The paper points out that in Scotland 5 million hectares are farmed. Of that figure £9.2 million go to environmental schemes. In England there are 9 million hectares and £60 million goes to England. In Wales there are 1,400 hectares and £16 million goes there. Farmers in the Argyll Islands ESA in Scotland can claim a maximum of £6,000 per annum whereas the average farmer in the Lake District ESA would claim around £14,000 per annum.

If all the farmers in the country could get that sort of money, it would not be bad and it would be a distinct help. But that would be impossible. We have to put environmental payments where they belong; they are excellent but are not a substitute for supporting agriculture. Agriculture can face fair competition in this country, but I have never known a period when one has had entirely fair competition. The European Union has been the perpetrator of more unfair competition than probably any other body.

This is an excellent report and I greatly enjoyed it. I agree with the paragraph on modulation, except that I am against it as it applies to the calculations of the Commission in what may come to this country. I am not against a form of modulation in this country in support of the smaller farmers, as long as it does not go to a ridiculous extent. I think it is a weakness of the report that it does not say that some form of protection is necessary for agriculture and the primary producer. I still think it is. But it is an excellent report. With that, I sit down.

10.40 p.m.

Lord Rathcavan

My Lords, as a member of Sub-Committee D I should like to thank our chairman, the noble Lord, Lord Reay, for the fair and firm way in which he directed our deliberations. Our inquiries led to some cul-de-sacs, but I think it was remarkable that we reached more or less unanimous conclusions and that we have been able to identify some ways to move forward and to bring together the interests of farming and the rural environment.

I am pleased to note that in their official response the Government have, in large measure, agreed with our conclusions. Any conflicts of interest on the way forward are, on the whole, much more marked within the European Union itself.

At our meeting with Commissioner Fischler he gave us an insight into the difficulties of squaring this circle of CAP reform. It is unfortunate that these difficulties have prevented him from going further in the Agenda 2000 proposals, although our own Government have been a lot more supportive than most towards the goal of restructuring European agriculture to make it fully competitive in world markets.

There are still far too many obstacles which frustrate and delay this process. There is still no clear timetable or strategy for the removal of price support, quotas or compensation payments linked to production. There is still so much uncertainty which prevents farmers from identifying the scale and direction of adjustments and changes in policy that they may need to make in the next decade.

This uncertainty leads to false expectations and sometimes wrong investment. It is only when we can plan ahead more seriously and more securely that good decisions can be made about how to help the environment in the long term and how to create, and I quote from the Report, a vibrant and economically self-sustaining rural economy". There is much about that in the Report, and I believe we have listed some important priorities.

I wish to speak in particular about the smaller or not so small family farms, upland and lowland, and what is for them, in this mood of uncertainty and in a period of reducing incomes because of the strength of sterling and of changing markets, a period of crisis. I speak with particular reference to the farmers of Northern Ireland, whom I know best. This generation of farmers may have had a somewhat sheltered life over the past few decades of guaranteed prices and price support, of quotas and financial premia on stock and some periods of profligate assistance from the CAP schemes.

Now they face a crisis, not just financial as their bank balances go from black to red, but of great uncertainty about whether, or where, there is a future for the smaller or marginal farmer who because of climate, terrain or size can never be competitive at world prices.

It is normal in most businesses today to do strategic planning and to have a three-year rolling programme. I am sure that some of our highly competitive UK farmers do just that. But in the case of this other group of farmers they can hardly plan a one-year programme at the moment, and they are often not in a position even to make a cash-flow projection to support a loan from their bank. They face a period of survival and drastic change, and Government must help farmers to try to identify the new options and move into new territory.

I am greatly encouraged by the formal response of the Government, in which they clearly recognise the need to target and improve agri-environmental and rural development measures such as ES As and the countryside stewardship schemes. I hope that the new measures can be brought forward as quickly as possible.

I should have declared an interest in a hill farm in a less favoured area (LFA) in Northern Ireland, which lies partly in an environmentally sensitive area (ESA), in an area of outstanding natural beauty (AONB), and partly zoned as an area of special scientific interest (ASSI), so I do not think that one can get more environmental than that! We found the ESA programme of enormous benefit and have been able to diversify into some tourism activity. It is just—only just—a viable business, but without ESA support it would be in the red. I wish that I could get rid of the sheep. I very much share the view of the noble Baroness, Lady Young, about sheep which destroy the uplands. I have seen them do that over several decades. If there was a way of reducing our sheep, we would grab it.

I was also involved in setting up a new scheme called Rural Cottage Holidays, which helps farmers to convert and operate redundant farm cottages and dwellings as holiday self-catering accommodation and trains them to do so. The scheme involves support from EU Leader programmes which, in my experience, have been of enormous help to remote communities. I am glad of the Government's continuing support for those programmes.

Our scheme also acted as a stimulus to show what was possible and that there was life apart from cows and sheep. I know of one farmer who stopped fanning, let his land and decided to make a business out of his holiday cottages. The noble Lord, Lord Mackie of Benshie, gave another example. In my experience of Northern Ireland, there is now a move towards part-time or half-time farmers. Markets which take place in the evenings or at weekends support that.

There is also a proposal somewhere in the Agenda 2000 pipeline for a scheme to encourage early retirement. Our report highlights the need to stimulate alternative economic opportunities to give aid to small-scale enterprises and to make available more education and training. In that context, I was interested to see the opening today at one of Northern Ireland's agricultural colleges of what is called an "incubation unit" to help farmers with new enterprises.

There can be a good future for the rural economy and for the marginal fanner. This report lists many ways in which we hope that the challenge can be met, if government can provide the support and direction. Time is short and everything in the EU seems to take an immense time to incubate, but as Agenda 2000 does incubate I hope that the Government will bring forward as fast as possible new measures to help the farming community, which is in crisis at the moment, to plan for a more stable future.

10.48 p.m.

Lord Willoughby de Broke

My Lords, this debate covers a broad canvas and in view of the late hour I propose to touch on only one aspect of the report. Before doing so, I thank my noble friend Lord Reay for his considerate and effective chairmanship of our sub-committee and for helping us to reach a consensus on this timely report.

The proposals trailed by Agenda 2000 are intended to move the CAP towards reality. As the noble Baroness, Lady Young, pointed out, there seems general agreement that the CAP is largely discredited, hugely expensive, inefficient, bureaucratic, environmentally damaging and, in many respects, even downright fraudulent. However, if there is general agreement on that, there is no agreement on what to do about it and on what the reform is to be, with European agriculture Ministers all too often hostage to political or social considerations.

However, given that EU member states have signed up both jointly and severally to the World Trade Organisation agreement, change there must be—and this will mean changes and challenges to the rural economy in general and to farm incomes in particular.

I declare an interest as a farmer and dedicated filler-in of IACS forms. One of the consequences of the proposals contained in Agenda 2000, about which the noble Lord, Lord Mackie, spoke eloquently, is the strong likelihood that direct farm incomes will fall even further. Inevitably, this must have an impact on the time and effort that farmers are prepared to put into environmental improvements on their land unless more resources are made available to them. "Resources" is such a useful word; it is so much more impersonal and less grasping than "cold cash".

The Minister will recognise that farming is under the whip at the moment, with lower commodity prices across the board, lower IACS payments and more pain promised in future if the Commission's proposals are accepted in anything like their current form. Where will that leave the rural environment? As a farmer, I am maddened by the prominence given in the media to some of the views of the more extreme eco-loonies about the effect of farming on the countryside. According to those Jeremiahs, it is a disaster area—a lifeless arable wilderness drenched in pesticides, pondless, treeless and hedgeless, and the victim of greedy farmers keen to extract the last penny from the last half-acre of holding. Where do the people who make these reports come from? Where do they compile them—on the Hammersmith flyover?

As any noble Lord who has recently—for example, last weekend—spent any time in the country will know, the truth is very different. Farmers are not environmental vandals. It is largely their efforts and dedication to improving their particular patch that have made the British countryside a magnet to millions of people, whether they be holidaying, walking, riding, cycling or even parking their cars in lay-bys to read the Sunday papers. The landscape that we all enjoy in the country has not been created accidentally by farmers and landowners over generations. The question is whether this will continue when Agenda 2000 bites. On this point, I find the Government's response to the committee's report somewhat encouraging. Paragraph 10 states: The Government agree that, subject to public spending constraints"— are those Conservative public spending constraints?— funding should be available to secure rural environmental goods which the market alone will not provide". That must be the right approach given our WTO commitments, which mean that future agricultural support will have to be decoupled from production. Effectively, that means goodbye to acreage payments and also cross-compliance. Here, I differ from the noble Baroness, Lady Young. I believe that those are little more than support payments wearing a green jacket.

Paragraph 12 of the Government's response mentions some of the voluntary incentive schemes that they are currently operating. There is a suggestion that some of these will be amalgamated. I encourage the Minister to pursue this with his renowned energy and persuasiveness. One has only to glance down the list of agencies and organisations which are involved in almost any government environmental initiative to see that one needs fingers and toes to count them: English Nature, the Wildlife Trusts, English Heritage, the Environment Agency, the CLA, CPRE, NFU, the county councils, district councils, FWAG and RSPB, to name but 11. We need a toe or two.

I am supported in the request for simplification by several of those who gave evidence to the committee, notably the CPRE and the NFU witnesses. At the moment, there is a truly bewildering array of schemes on offer, many with overlapping objectives and duplicated and complex bureaucracies which make life unnecessarily difficult for the poor peasantry. We would prefer something much simpler. One example of the way that the Government might move forward, which was referred to by my noble friend Lord Reay, is the Countryside Stewardship scheme. I believe that this is a model for the kind of environmental schemes that we will need in future—schemes that are clearly in the "green box" and are entirely decoupled from production subsidies, however well disguised.

The Countryside Stewardship scheme offers an a la carte menu of environmental good, the sort of things which most people would agree would enhance the landscape—tree and hedge planting, water features, stone wall restoration, stiles, grass margins to arable fields, and so on. But they are labour intensive and will detract from rather than add to the bottom line. They will not happen unless there is a cash incentive. The problem is that, as much as many farmers would like to participate in the Countryside Stewardship scheme, they are simply unable to do so. I speak as a disappointed applicant. Perhaps I did not have initials in front of my farm area as the farm of the noble Lord, Lord Rathcavan has.

The Countryside Stewardship scheme is a victim of its own success. It is over-subscribed by 50 to 60 per cent. according to officials we interviewed from MAFF, while there is a paltry £5 million per year available for new schemes. Indeed, the financing of environmental programmes in the EU accounts for only 3 per cent. of total CAP expenditure. So much for the environment. But the very fact that the Countryside Stewardship scheme is over-subscribed is a testimony to its success and, incidentally, a testimony to the desire of farmers to do something for their own farm landscapes, for, as one of our witnesses reminded us, regulations never planted a hedge.

Perhaps I may add a few words of caution. The Countryside Stewardship scheme is financed by public money and, inevitably, the question of public access arises. As the Minister is aware, the opacity of the Government's intentions on access was one of the major concerns of many of the 0.5 million or so people who took part in the Countryside Rally on 1st March.

Of course, where public money is involved, so is the question of public access. But I merely wish to remind the Government, if they did not know it already, that access is an extremely sensitive subject and it would be a great pity if over-prescriptive access agreements were to be tied to Countryside Stewardship schemes in the future. You can always do more with volunteers than with conscripts.

I conclude by repeating my plea to the Minister to do all he can to press for a Countryside Stewardship scheme Mark II which would rationalise some of the present overlapping arrangements and which would be much better funded to allow for the expansion of the scheme, which is in great demand. Could the necessary resources not be found from savings on acreage payments to farmers which, if we are to believe the Commission, will have to be vastly reduced, if not eliminated, in the future? Were the Government to do that, they would be taking a positive step towards ensuring that our British landscape would be something which we should be proud to hand on to future generations.

10.57 p.m.

Lord Grantchester

My Lords, the debate tonight is timely, as next week the meeting of EU Council of Agriculture Ministers presents the last opportunity for the UK Government to make any real progress in CAP reform during their presidency. I declare an interest as a dairy fanner in Cheshire. I should also like to thank the noble Lord, Lord Reay, for the excellent way in which he chaired the discussions and conducted the inquiry and, indeed, for the way in which he summed up the report this evening.

The committee's report and the Agenda 2000 proposals come at a time when UK agriculture and its related industries are suffering from the strength of sterling, increased costs, especially within the livestock industry, and a lack of concern as regards its relative competitive position within the food chain. That underlines the need for reform, as a constrained agriculture reduces the ability of farmers to diversify or to act effectively as stewards of the countryside.

Although the Commission claims to be continuing the reforms started in 1992, it does not go far enough. Despite clear statements made at Cork in 1996 and by the Agriculture Council in Luxembourg last year, a more prominent role has not been given to rural development. EU policy must do more to diversify the economy in rural areas and to deliver environmental land management through rural communities as a whole.

In Agenda 2000, the Commission has gone for a piecemeal rather than a coherent approach. It has introduced the further complexity of national envelopes which is likely to lead to more market distortions. It fails to understand the importance of agri-environmental and rural development and fails to recognise that rural areas demand an integrated approach.

Agriculture has been in long-term decline as an employer and generator of wealth for many years. The challenge is to sustain communities while they identify fresh opportunities. I should like to highlight this evening just one area of the committee's report immediately relevant to the process of change from funding commodity support to funding, even as a temporary measure, the environment; namely, cross-compliance. It is essential that contradictory messages are not given out through the linkage of environmental conditions to production support. Community funding of environmental policy should relate to community benefits. The attachment of environmental conditions is misconceived. If the aim is to reduce production support, cross-compliance will be of little long-term benefit—it may be cheaper to forgo the aid and not to comply.

Once environmental policy is tied to existing farmers, that will be used as an argument to resist change on the grounds that the environment would suffer. Cross-compliance is not cost free, as it will result in substantial expenditure in setting up and policing schemes so as to avoid massive fraud of the sort that helped bring the CAP into disrepute. Further, it does disservice to competitive agriculture by distorting common market conditions, especially if it becomes devolved through national envelopes.

What is needed is a commitment by the Commission to phase out production compensation payments and to use a substantial part of the funds released to underwrite an effective rural environmental programme. That will stand on its own merits and apply to all who could contribute to enhancing the countryside, not only existing producers in receipt of CAP support payments.

Thus, the proposal to cancel support payments to farmers who do not respect given environmental standards is fundamentally flawed.

It is encouraging that the latest OECD report entitled, The Environmental Effects of Reforming Agricultural Policies, supports the committee's views, saying: Agricultural environmental measures appear to have been effective when: the environmental goals were clearly specified and the actions required of farmers closely linked to the goals; the lands accepted into the programmes had a high conservation value; the measure were adapted to the environmental, economic and social situation prevailing in a given area; farmer compliance was closely monitored and the effects on farming practices and the environment continuously assessed against the stated objectives; and training and advice was provided to ensure that the measures were appropriately implemented". The challenge of the future is to provide a clear pathway to change in the rural economy. Part-time farming will need to be encouraged. Planning policies must become sympathetic. Agriculture must begin to integrate with wider economic activity. The process of reduction in Community support must proceed in unison throughout the EU, and governments who wish to go faster must resist the urge—frustrating as it may be—to act unilaterally. Rural development will need encouragement and investment in job creation to return prosperity to agricultural communities.

11.3 p.m.

Lord Geraint

My Lords, the House of Lords' report places emphasis on investment and on new job opportunities in rural areas. I hold the same view as the leaders of the Farmers' Union of Wales. We argue that this will be achieved—given that agriculture is the core activity in rural areas—only by ensuring that agriculture is a viable proposition. Farming is the heart of the rural areas and many of the ancillary industries are dependent on it for their future. As is presently so obvious, the potential to add value to primary produce is enormous in order to create job opportunities that are compatible with rural communities. These employment opportunities have to be created off the back of a viable farming industry and not instead of agricultural jobs.

I am sure that noble Lords will forgive me if a stray a little from the report by referring to our domestic problems in my native country of Wales. At the end of the day, I take it that in our deliberations we all want to see a viable farming industry in the whole of Britain. As European monetary union approaches, the United Kingdom must not be locked into a new agri-monetary system that puts Welsh farming at a competitive disadvantage. Will the Government's approach be to ensure competitive equality for Welsh agriculture? What will be the Government's position on agri-monetary compensation if sterling strengthens again in the second half of 1998?

Farm incomes fell 45 per cent. in 1997 and incomes are unlikely to recover in 1998 or in the foreseeable future. The profitability of farming is under enormous pressure. In many areas this in turn threatens the ability of farmers to look after the countryside. The key question will have to be asked on the way to support the competitive position of Welsh agriculture now.

When can the beef producers expect the beef ban to be lifted and opportunities to export re-opened for the quality end of the Welsh beef production? I hold the view that the Office of Fair Trading investigates the supermarket role and the way supermarkets deal with suppliers and consumers alike. The future destiny of the agricultural industry is in the hands of the supermarkets. We now have 1,000 hypermarkets in Britain selling 50 per cent. of all food in the country. There is little doubt that the supermarkets have done the consumer a huge favour. But in the process auction marts, high street butchers, bakers and greengrocers' shops have closed. That represents a huge diminution of buying power. In its place we have eight to 10 supermarket chains offering identical products at similar prices.

Not only are the majority of Welsh farmers desperately worried about their current situation, but also about their fate come the 21st century. Currently there exists great dissatisfaction, namely because of the proposals outlined in Agenda 2000. These will create a transition which will be detrimental to the long-term future of farming in Wales. Once again I urge the Government to establish a Royal Commission to look into the present state of the agricultural industry and the countryside. My request was turned down last time and I wonder whether the Minister has reconsidered what I stated on that occasion.

The insecurity among the young farmers in particular creates great misery in the rural areas, with their future looking exceptionally bleak. It really would be a great loss if we were to allow these small farms to disappear. After all, they are and have been the backbone of the Welsh economy and language. I agree with the views expressed by the Country Landowners' Association, which states, The Commission has gone for a piecemeal, rather than a coherent approach. It has introduced further complexity, not simplification. It fails to accord sufficient priority or resources to agri-environmental and rural development, and fails to respond to the needs of rural areas for an integrated policy based on three pillars: sustainable agriculture; sustainable environment; sustainable rural economy. So far, Agenda 2000 is a wasted opportunity". Yesterday I bought the Sunday Times and I was depressed when I read an article by Peter Conradi in Brussels. I wonder whether the Minister can say whether this allegation is true or otherwise. It reads as follows: It was an all too typical example of the European Union's efforts to help the Third World. In an attempt to boost the poor farmers of the southwest African state of Namibia, the EU promised a £2.5m grant to build abattoirs that would supply meat to the lucrative market of neighbouring South Africa. By the time the money finally came through more than a year later, some Namibians were wondering why Brussels had bothered. The country's meat industry was in crisis, devastated by subsidised European beef 'dumped' on South Africa at half the price of locally produced meat. The newly built abattoirs are running at only a quarter of their capacity. 'It was a bit nonsensical,' said John Leroux, marketing manager of Namibia's meat hoard, last week. 'The EU has been giving money to these plants and then sending their own subsidised meat in to compete'". It is a very sad day if that story is true.

Finally, I should like to turn to my hobby horse: I have raised this matter many times during the past 25 years and have had the same replies from Ministers of different political persuasions over that period of time. Many noble Lords in this House profess, as I do, to be Christians. There are millions of people starving every day in the third world and we pay farmers in this country for not producing food. It is all wrong and I believe that we should do something to help those people who are starving. Many Ministers have said in the past that if we do that we will spoil their economy and stop their own farmers from developing their land. But that is not an answer when you are starving to death.

I believe that we, as Christians and as people living in the western world, can do a great deal to help these people who are dying for lack of food. It is food for thought for the Minister and for everyone within the Community. I believe that we could build processing plants and deliver to the starving millions food in a form that could be carried to the third world; and we could employ many people who are now unemployed to do that work on our behalf.

Having said that, may I thank the chairman, the noble Lord, Lord Reay, and the other members of the committee for the excellent way they have carried out this report. I am sure that the Minister, in his wisdom, will do his very best, as he has promised in the past, to help the farmers, who have a major problem on their hands at the present time. I hope that in his deliberations within Europe in the months to come we will benefit from the contents of this report.

11.12 p.m.

Lord Palmer

What a pleasure it is to follow the noble Lord, Lord Geraint. I think it is the first time I have done so since I had the honour to congratulate him on his maiden speech many years ago, and exactly on the last subject he has mentioned: the starving, particularly in Africa. It is an absolute scandal that one is discussing Agenda 2000 with all this food going to waste when one looks at the television screen and sees those children literally starving to death. We are living almost in Cloud-cuckoo-land and I am sure the noble Lord, Lord Donoughue, will want to respond positively on this when he comes to wind up.

I too would like to add my tributes to the sterling work of the committee and it was pleasing to note the important role that the six hereditary peers played on that particular committee. Somebody saw me carrying the large red document and said, "Gosh, that looks like good bedside reading." In fact it made the most incredibly easy reading.

It is very interesting, when one thinks that the Government are keen to reform this House, that tonight there are nine out of the 12 speakers who are hereditary peers, and who are at "the coalface" of agriculture and who really know what we are talking about. I have to say that this is the most reader-friendly report and I congratulate the noble Lord, Lord Reay, and his committee most sincerely.

I must declare an interest. For the past 19 years I have tried to farm in the Scottish Borders. I was fortunate enough to inherit a small farm and a workforce of 17. Today I am farming a bigger acreage with just four men, three of whom are the second generation of their families to work on the farm. From 1986 to 1992 I represented Scotland on the European Landowning Organisation. I had the honour to ask the ELO president to come to Scotland on a fact-finding mission. I shall never forget taking him up to Glen Shee. We looked at that barren, snow-covered mountain face; and it was extremely difficult to convince him that that was home to 3,000 black- faced ewes.

I think it is important to reflect on what the situation was those 19 years ago. We were told that more food was required—drain the wetlands, pull out the hedges, buy bigger tractors and here is a grant to do so, and of course most of us had to borrow the shortfall. And—this is hot off the press this morning—indebtedness by UK farming today is at a staggering £5.5 billion, £900 million of which relates to Scotland. Had the captains of industry run the CAP, they would have all been sacked years ago for gross incompetence. And to think that we are now being told, "Stop—set it all aside" is quite unbelievable.

I am disappointed that the noble Lord, Lord Mackie, did not use his normal wonderful analogy about the price of milk in relation to how many hours one has to work, and how many miles one has to drive to get a pint of beer, and so on. I looked up Hansard over the weekend. I remember the noble Lord saying that he had walked many miles, but never to buy a pint of milk! Going back those 19 years, a 100 horsepower tractor cost £15,000. Today that same tractor would cost £35,000. Nineteen years ago, wheat was selling at £100 per tonne. Today, if one is lucky, one will get £80 per tonne. A 15 foot-cut combine cost £25,000. Today that same combine, admittedly with many refinements, would cost £93,000. Those figures are very telling. One thing is for sure. The price of a loaf of bread and a pint of beer is not the same as it was 20 years ago! I am also glad that the report emphasises the acute problem that the United Kingdom's agriculture is facing today. Most of Britain's farmers are professional farmers and not part-time farmers like many in Germany and France.

In the Scottish Borders arable farmers last year suffered a 70 per cent. drop in income, and I believe that many hill farmers in Scotland and Wales saw their income drop by 89 per cent. I do so wonder how a European Commissioner would feel if he were suddenly told that his take-home pay was going to fall by 89 per cent.

Farmers have not only done what they were told to do but also what they were financially encouraged to do. It must not be forgotten that farmers have little idea what their crops will cost to grow, to harvest and to dry, or what they will yield per acre—and, most importantly of all, what the wretched things will be worth. That is an incredibly important point for the Minister to take on board. It must be a unique situation. Farmers, unlike any other industry, have no control of their destiny. This in itself is a terrifying situation, as I hope the noble Lord, Lord Donoughue, and his Cabinet colleagues will appreciate.

Turning directly to Agenda 2000: any price cuts should be fully compensated by the new direct payments scheme. Modulation must be resisted at all costs. I am horrified that there is no reference at all to currency revaluations and it is indeed frightening to think that in the past two years alone sterling has risen by 33 per cent. against the German mark. It really is quite frightening. We must have a new agri-money system up and running by January of next year if the dreaded euro really is coming into operation.

There is also no mention of the sheep industry which is so vital to Scotland, and indeed to the noble Lord, Lord Geraint's native Wales. Another glaring omission, about which I feel passionately, is industrial crops. North Sea oil is not going to last forever and I would urge Her Majesty's Government to increase the 2.1 per cent. of GDP which is currently spent on research and development into bio-fuels, straw bio-mass chemical production, which includes lubricants from oil seed rape, biodegradable plastics and paper from cereals and sugar.

Every speaker has mentioned the Countryside Stewardship scheme. I could not agree more. However, without a thriving and profitable agricultural industry, we cannot look after the countryside in the way people in this country expect us to do. It is simply not possible.

Finally, the CAP is a mess, a shambles and an utter disgrace and I urge Her Majesty's Government to do all they can in the last few weeks of their presidency to rectify the ludicrous situation in which particularly UK farmers find themselves through absolutely no fault of their own.

11.22 p.m.

Lord Middleton

My Lords, I, too, congratulate my noble friend Lord Reay and his committee on producing an excellent report. My noble friend has paid tribute to the work of his committee clerk. Perhaps I may take this opportunity to extend that tribute. Having had some 12 years' experience on Sub-Committee D, I cannot praise too highly the clerks with whom I worked. Without their skill and diligence, the European Select Committee simply could not operate. The House owes them much.

In the introduction to this report it is stated that it was the decision of Sub-Committee D to focus on the rural development and rural environment aspects of the Commission's Agenda 2000 communication. I understand the reason for that decision.

But in order fully to do justice to the all-important subject of the CAP and the pressing need for reform, one has to look at the whole Agenda 2000 package. A balanced assessment cannot be made by concentrating on only a part of it. Reading between the lines, it is clear that my noble friend's sub-committee came up against that difficulty at the outset of its inquiry. Its report is all the more valuable for an inevitable broadening of the scope of the inquiry. A good deal of evidence was heard on the agricultural content of the package, and there are six paragraphs in the opinion section of the report devoted to that aspect.

The sub-committee was entirely right to emphasise the need to link the rural environment and rural prosperity with the need for a clear strategy for the removal of price supports and quotas and a timetable for degressive production-related compensation. It rightly criticises Agenda 2000 as a whole for not going far enough to prepare European agriculture for the kind of reform that would encompass such a strategy.

Turning to rural environmental and development policies, when Sub-committee D reported in 1996 on the Fischler reform proposals, we supported in principle the idea that CAP reform should contain what is called "an integrated rural policy". What were then lacking were any detailed relevant proposals. What we have now is still somewhat sketchy.

On environmental policy, the report sets out the arguments for and against "cross compliance", about which we have heard something tonight. It makes a compelling case against its adoption. This is slightly weakened by a wobble at the end of paragraph 82; but I listened to what my noble friend Lord Reay said about it in justification.

On rural development policy, our Sub-committee D's 1990 report on the future of rural society called for encouragement for rural-based, non-agricultural businesses, both on and off farm premises, for supportive planning policies and for a continuing role for rural development agencies. These recommendations are reiterated here, and rightly so.

The sub-committee reports the concern of witnesses who fear that the Commission proposals for the reform of the structural funds will be to the disadvantage of rural areas, particularly in the UK. Having heard my noble friend Lord Reay, I think I now understand what is meant by a "horizontal rural development policy". Whatever that implies, I share the worries of witnesses about the demands of both rural and urban areas being fused into the orbit of a new objective 2.

I share the concern of the Rural Development Commission when it gave evidence that the transfer of its responsibilities to regional development agencies may be to the disadvantage of rural England. My noble friend Lady Anelay developed this theme in an earlier debate today. I hope that the Government will take on board the points made in the report in this connection.

I also share the fear expressed in the report that the proposal to fund the objective 5(a) and 5(b) type measures from within the guarantee section may be too restrictive.

On the question of LFAs, I remember that when we were looking at the MacSharry proposals we were firm in advocating decoupled support where compensation was required. At the same time, we wanted continued funding for hill farmers. It was difficult to recommend undecoupled HLCAs, though we did so, in defiance of logic. I am glad to note that the report sees a logical way forward in the Commission's new proposals and recommends a degree of subsidiarity in operating this essential support. Great attention will be needed in creating an effective system to ensure the survival of our upland farmers in the UK.

Turning to the question of funding, the report advocates a more sophisticated method of funding, pointing out in paragraph 110 that: There should be no presumption that savings produced by CAP reform should automatically he used in other ways in rural areas. There appears to be support for the principle set out in Part III of Volume I of the Agenda 2000 document which says that a new horizontal measure is needed to be, implemented in a decentralised way at the appropriate level at the initiative of Member States". I can see the merits of applying the principle of subsidiarity where agricultural environmental measures are concerned, the needs being so different across the community, but I am bound to say that alarm bells started to ring when I saw the word "appropriate". I wondered what kind of initiative might be taken by the UK and what level of contribution would be considered appropriate by a UK government under Treasury pressure at a time when support for rural communities was low on the spending priority list.

Finally, I am all too aware of the Commission's apprehension about trying to get member states to agree to the kind of radical CAP reform measures that are necessary. Of course, the political obstacles are huge; but it must be recognised that even these watered-down proposals will take a long time to negotiate in Council—several noble Lords referred to that. Ideally, it would be better to cut out that stage altogether and for the Commission to embark now on a full and radical new reform package on the lines recommended in our CAP reform report of 1991. It is accepted that such proposals will be more difficult to negotiate, but time wasted on the current, unsatisfactory Agenda 2000 would be saved. A spur towards agreement would surely be provided by the challenges of the WTO and enlargement.

The report on Agenda 2000 by the Agriculture Committee of another place concludes by saying, Though it prepares the ground for an integrated rural policy to he established in the future, Agenda 2000 is a missed opportunity". That I believe to be an understatement.

11.30 p.m.

Lord Moran

My Lords, I must declare an interest in that my wife has a small hill farm in the Radnorshire environmentally sensitive area and belongs to the ESA scheme. I can say to my noble friend Lord Rathcavan that we have got rid of our sheep, though we kept our pedigree Welsh black cattle.

I enjoyed this inquiry. I echo our chairman's tributes to our clerk and specialist adviser; and he was an admirable chairman. We were covering familiar territory; we had been there before in 1990–91 and 1995–96. But we have tapped some new sources of evidence. I should like to draw your Lordships' attention particularly to the evidence we had from Hampshire County Council and West Oxfordshire District Council, from Mr. Philip Merricks, who combines being a big farmer and a leading environmentalist, and from Strutt & Parker. All of them are well worth reading.

Once again we are considering the problem of reforming the common agricultural policy. It is indeed deeply flawed and unsatisfactory—almost but not quite as bad as the common fisheries policy. It spends around £3 billion a year on subsidising food production in the United Kingdom, largely devoted to maintaining and increasing production, regardless of other considerations, while failing to give all but the largest farmers satisfactory incomes or to prevent the movement of farmers out of agriculture.

The written reply of the noble Lord, Lord Donoughue, to a question from me on 17th June last year made it clear that this Government share the view of the previous government that the CAP is costly, inefficient and wasteful and does not pay proper regard to environmental considerations. Our report quotes the Prime Minister—who can hardly be described as a Euro-sceptic—as saying that the CAP is, a manifest absurdity which discredits Europe". Nevertheless, the CAP has been with us for some 40 years, and despite the calls of British governments for its reform, very little has changed. That is because in the EU, as now constituted, so many countries like the Republic of Ireland do well out of the CAP and so many like France and Germany are in thrall to determined agricultural lobbies that radical changes have not so far been an option. The only modest changes were the MacSharry reforms of 1991. I was on Sub-Committee D at that time under the chairmanship of the noble Lord, Lord Middleton, when we considered those changes which, for the first time, introduced agri-environmental measures, though expenditure on them was only a tiny percentage of what was spent on production support. They did however give rise to some valuable schemes like the environmentally sensitive areas.

Eighteen months ago the Commissioner for Agriculture held a conference in Cork on rural development which came up with a declaration that presaged much better integration of the environment with agriculture and was widely welcomed. We went to Brussels in July last year, just after publication of the Agenda 2000 proposals. I had the opportunity to ask a question of Commissioner Fischler. I asked him, among other things, why Agenda 2000 had apparently gone back on what had been said in the Cork declaration. I had a very long reply from Herr Fischler, in which, however, he contrived not to answer any of the questions I had put to him. It was depressingly clear from that visit that the environment was not a priority either for the Commission or for the majority of member states.

Agenda 2000 said nothing specific about the expansion of agri-environmental schemes and offered almost nothing to reverse the decline in the environmental quality of Europe's farms. The Commission evidently regards environmental considerations as peripheral and of low priority and aims in effect to continue the present system, under which 61 per cent. of the CAP is spent on crop subsidies, 33 per cent. on livestock subsidies and just 3 per cent.

on the environment. MAFF, for its part, is providing £500,000 a year for a valuable pilot arable stewardship scheme, but that compares with £1,350 million paid in the arable area aids to farmers.

Professor Alan Swinbank of the University of Reading, that powerhouse of agricultural expertise, has recently argued that the proposals made by the Commission will not be acceptable in the trade negotiations due to begin next year in the World Trade Organisation. They are, he says, merely a disguise for the continuation of the present CAP, largely unchanged; an attempt to continue a protectionist agricultural policy under a new green WTO-compatible camouflage. Even so, the Agenda 2000 proposals, modest as they were, were in March condemned by the EU Agriculture Ministers, who did not even want this small further reform, and since then no substantial progress has been made, though detailed negotiations have now begun.

A fundamental difficulty is that the proposed compensation payments appear to be intended to continue indefinitely, a proposal we attack in paragraph 65 of our report. Unless these payments are phased out, there are, it seems, unlikely to be any more resources to meet the real and urgent needs of rural development and of the environment. The Worldwide Fund for Nature has argued that over 25 per cent. of the current CAP budget should be redirected from price support to direct payments for environmental benefits. The CPRE proposed 20 per cent. Clearly, the 3 per cent. spent on the environment is totally inadequate.

All across western Europe, it is on farmland that the greatest declines of birds and other wildlife have been observed. In this country, farmland birds have been the victims of the intensive industrialised farming, promoted by the CAP—the autumn sowing of cereals and the consequent absence of winter stubbles, the disappearance of hay meadows, the greatly increased use of herbicides and pesticides, so eliminating weed seeds and reducing insect populations, and the passing of mixed farms. The results are well known. For example, an 86 per cent. drop in partridge numbers, and skylark numbers falling by 330 birds every day. We are turning much of our farmland into a birdless desert.

What can we do? In Brussels, we can only make progress by seeking allies among other member states and trying to form a coalition of members determined to give the environment a higher priority. I should like to ask the Minister whether the Government are doing this, or plan to do it. But I am not too sanguine about the prospects. I think, for example, that the RSPB is being wildly overoptimistic in saying in the current number of its magazine that our presidency has given the UK a unique opportunity to take a lead on environmental policy-making. I see very little sign of that.

More generally, we have to realise that the policy decisions on agriculture are now made in Brussels, where we are only one voice among many, and a weak voice at that. We have had the bitter experience of the shameful treatment of our beef industry. We see all around us the results of subsidy farming, whether it is the endless livid yellow tracts of oil seed rape, or the excessive numbers of sheep in the uplands resulting from headage based payments, about which the noble Lord, Lord Reay, spoke.

I do not myself believe that simply calling for the reform of the CAP, as this Government and their predecessors have done, has any effect. It is possible that the CAP may eventually be modified because of pressure from the World Trade Organisation, the needs of governments to keep expenditure within bounds and the eastward enlargement of the EU, if that comes about.

Some member states may realise that change may eventually be forced on the EU and be reluctant to give anything away until it is. It is, I believe, deeply unsatisfactory that we are chained to a system which our Prime Minister regards as a discreditable absurdity. I would a thousand times prefer that we were out of the system and on our own, but so long as we are in, I believe that we must do what we can to persuade other member states and the Commission to take the environment more seriously, as I am convinced that the people not only of this country but of Europe as a whole, would wish us to do.

11.41 p.m.

Lord Inglewood

My Lords, before adding a few comments of my own to this interesting and worthwhile report, which has been so lucidly introduced by my noble friend Lord Reay, I should explain to the House that I farm in Cumbria on my own account, both inside and outside the environmentally sensitive area. My experience there is that we have actually reduced the stocking on some of the fell and the heather is coming back. In addition, I am the owner of some let agricultural land.

In considering the common agricultural policy, it is important to look at it in two quite different ways and it is necessary to do both simultaneously. First, as an economic phenomenon and as a form of agricultural policy for western Europe in the second part of the 20th century, in particular when viewed from the United Kingdom, it is expensive, wasteful and in many respects unsuccessful. However, one must also look at it as a political phenomenon. It is the policy which created the Treaty of Rome and, as a result, in many quarters it has been ascribed an almost sacramental character.

What we have here is a combination which, when viewed from one perspective, is deeply flawed and, when viewed from another, is almost inviolable. Nevertheless, as the committee quite rightly points out, we cannot go on as we are. Even if we positively want to retain the status quo we cannot do so because we are seeing the development of World Trade Organisation policies digging further into the agricultural sector.

Secondly, the expansion of the European Union eastwards creates the need to draw eastern European agriculture into the western European market place. In short, in this respect we have to try to find a means of repeating in a different way what was done between France and Germany in 1956 but this time bringing eastern and western Europe together.

Against that background, I believe that it is important that we concentrate on principles and do not allow ourselves to be too hung up by detailed policy mechanisms, for I believe that if we get the principles right the latter will follow. There are more ways than one of skinning a dead cat.

What are the main principles and points which we should focus on in considering these reforms? I would like to enumerate one or two, although I do not wish the list I give to be perceived as exclusive. First, the policy is obviously too expensive and is very bad value for money for taxpayers and consumers. After all, support through intervention buying involves the taxpayers or consumers spending the total cost of production in order to confer the benefit of the value of the net margin in favour of the farmer.

Secondly, the policy is production focused at prices above world level. After all, in an era of EC surpluses it cannot be sensible to encourage surpluses at above world prices. This imposes quite unnecessary burdens on consumers, hinders world trade and hardly helps the hungry.

The third point has already been mentioned. We must oppose modulation, which has the effect of nullifying the benefits of the steps that farmers may well have to take when faced by the economic consequences of the reforms that they will have to make. Given that modulation will affect northern Europe quite disproportionately as against southern Europe, it is tantamount to discrimination on grounds of nationality and, as such, entirely at variance with one of the basic principles of the European Community.

It is also in practice a policy which discriminates in favour of farmer proprietors as against hired labour. As such it is inequitable and, I imagine, an aspect which I would expect Her Majesty's Government to be especially concerned about, not least of all from the Government who introduced the employment chapter into the Amsterdam Treaty.

Fourthly, as the report recognised, fluctuating exchange rates probably have a greater short-term impact on agricultural prosperity than anything else. The noble Lord, Lord Mackie of Benshie, pointed to the Government's shabby record in the recent past on this. Given the evolution of a Europe which its creators intend will be a stable currency area, can the Government confirm that for as long as support mechanisms calculate prices in a manner that does not protect the UK farmer from adverse currency movements, the Government will not permit UK agriculture to suffer from adverse exchange rates or be discriminated against for as long as we may remain outside economic and monetary union, for however long that might be?

As has already been mentioned, I believe that in parallel there are two wider policies that must be fully incorporated, as was spelt out in the committee's report. First, agricultural policy must be environmentally benign in its impact, promote environmental good practice and remember that policy must benefit not only those who earn a living from the land but the land itself. Secondly, agricultural policy must be integrated with wider rural policy both to ameliorate the effect of the inevitable changes on those squeezed and to diversify rural employment prospects and to underpin rural services.

Finally, I believe that the present CAP is too Brussels centred. The policy should evolve more towards the model of, say, industrial policy and be delivered by mechanisms and paid for by money which do not necessarily go through the Brussels loop. That is entirely in accord with the wider principles of subsidiarity which are being entrenched in the workings of the Community.

I also agree with my noble friend Lord Middleton in his comments about the short-term problems posed by agricultural reform. In the longer-term it seems that the combination of the next round of World Trade Organisation trade liberalisation and the problems posed by the imperative of achieving the next stage of European Union enlargement eastwards provide as good an opportunity as we have had for many years for reforming the CAP in a direction which is appropriate for all of Europe in the next millennium. After all, we need to meet the needs of farmers and their families, who should not be accorded a peasant standard of living. It would indeed be ironic if the Government who are introducing the national minimum wage should impose standards lower than that on farmers and their families.

We must make sure that consumers should not have to pay unnecessarily high prices for their food and we should make sure that the land itself should be recognised as the source of future wealth and well-being and not merely a quarry to be worked out for today's needs. But I think it goes further than that. We are now seeing in the modern world a kind of seamless system across western Europe based around the European Union. The distinction between domestic politics and foreign politics, which has always been a bit blurred, is now becoming very fuzzy indeed.

As far as European Community policies have been concerned, the dominating position of the CAP, with its rights of pre-emption over so much spending, have unbalanced both policy-making and expenditure in the Community. That has always been perceived as anachronistic in this country. But as we are seeing, as a previous speaker mentioned, an increasing move from the land in many countries on the Continent, it is also being perceived as equally anachronistic there.

The central position that the CAP has in European politics has been a major contributor to public bewilderment and sometimes muddled, but far too often genuinely relevant, criticism of the European Union. If agriculture were to move away from the centre of the European political scene, I believe that that would very much be in the European Union's wider political interests.

11.49 p.m.

The Earl of Lytton

My Lords, I start by declaring an interest as an Exmoor moor hill farmer in one capacity and as a chartered surveyor in another part of the country in another, so I could be described as a "diversified rural businessman". I am also a member of the Country Landowners' Association and I declare that interest also.

I specialise in trying to make what could be described as silk purses out of sow's ears. In about 1989, I lost confidence both in the CAP and in rural policies generally and I set about diversifying my holding with serious intent. In addition to about 750 ewes, we now have a reasonably substantial commercial pheasant shoot. The ewes still employ one person, as they have always done. The shoot must account for at least six other employees, if not more.

I welcome the report and I pay tribute to the noble Lord, Lord Reay, and his committee. Although it will almost certainly make no difference to what the noble Baroness, Lady Young, described as the "juggernaut process" of Agenda 2000, in both what the sub-committee said plainly and in what it implied I believe that this is a milestone report. It is a great shame that this debate is occurring so late when so few noble Lords are present in the House to listen to our deliberations.

Agenda 2000 is, at best, palliative treatment. It does not address the disease or its cause. We all know the state of the bodily functions and the pressure from the World Trade Organisation. The removal of the distorting factors is fine, but what of exposure to world prices for an EC economy that increasingly has a quite different cost and social structure from those of many other competitor areas? It is a world that in many areas does not share, in particular, British concerns over food standards, additives and methods of production—and specifically that they are humane and meet environmentally exacting land-use standards.

There is the problem of enlargement and the pressures on the future distribution of Community benefits, especially in the light of the great discrepancies (for a long time to come) in the national GDPs of the central and eastern European countries. There are lumps and bumps in affordability, efficiency, the degree to which the playing field is—or will ever be—truly level, and in the compliance costs that we impose which others across the world may not.

There is sclerosis in terms of the political pressure to change. The objective should have been to reduce the burden of the CAP in terms of cost and complexity; Agenda 2000 increases both. The increase in product support and the real risk of intensification of agricultural production run counter to what most EU voters want. There is the growing UK trade deficit in temperate food products and the declining importance of agriculture in the UK rural economy.

The buffers are in sight. We have had years of uncertainty and the EC answer that we are given is to switch the train into a siding that ends in 2006, prolonging the agony and doubt, and creating loss of confidence for consumers and producers. As a result, the rural economy is on the shortest of short-term agendas when it needs long-term vision.

It is now beyond question that we cannot sub-contract rural policy on the assumption that the CAP will provide. It will not. We have BSE and the severe decline in all areas of livestock rearing, including sheep, and a poor outlook in many other sectors. That has shifted the whole economic picture. Marginal areas, predictably, have been the first to reach crisis point, including some of our loveliest, most environmentally cherished and most fragile uplands—the sort of country where I farm.

Structural funds are to be consolidated with no ring-fenced rural fund and, critically—although at the moment the regional development agencies hope that they will help in this—there is no clear strategic vehicle to make use of them, a concern expressed to me by the Association of National Park Authorities.

There is not the time to get all this sorted out by Europe. Europe's policy, an example of which is modulation, is now fundamentally a social and not an economic one and may well discriminate against economic efficiency while failing to protect environmental imperatives.

What do we do? I suggest that we must build our own rural policy lifeboat while the CAP soldiers on for as long as it can. But we will not do it by job substitution, by which I mean urban-style commerce simply translocated to a rural environment, making abandonment of land use all the more likely; and we will not do it simply by adding houses for people who will have to travel elsewhere for jobs. That must be an affront to sustainability. Nor will we do it by discriminating against holiday home or second home owners without finding ways to harness their resources. This problem is one that vexes local authorities in the Lake District. We cannot discriminate against valuable sources of inward investment whatever its source, but we should start to link the management and use of rural land with worthwhile economic objectives. We should reduce bureaucracy and overall compliance costs. If necessary, we should look at our domestic fiscal measures to make objectives worth while and attract inward investment, not for speculative gain or property sales but for businesses employing people who add value to the primary produce of the land. For example, scenically valuable land should be worth making valuable also for the land managers. I have mentioned this on many occasions in the past in this House. Often economics and the environment have an inverse relationship, which is totally wrong, but, in creating vehicles to deal with this, whether they be stewardship or anything else, there must be flexibility. Above all, we need a long-term strategy.

I believe that it takes a generation to change rural perceptions and economics substantially. We are part-way through that process. A 20-year forward rural policy by consensus, not a grand central plan like that of the former Eastern bloc, is required. There need to be signposts in that direction instead of the chopping and changing that has gone on in recent times. We need to encourage low input farming, organic farming and the highest standards of welfare and environmental care and insist on those standards applying to the goods that we import. We need to create a culture of diversification wherever feasible. The noble Lord, Lord Mackie, said that it could not apply everywhere. He is right; it cannot. But wherever that is possible it should be met with a "can do" mentality on the part of government, particularly in local authority planning powers, but always in ways that foster the use and management of the land, not simply to asset strip it.

The noble Lord, Lord Palmer, referred to biofuels, industrial crops and fossil fuel substitution. That requires serious pump-priming and further encouragement, if only on grounds of sustainability. We also need to create greater open-mindedness without built-in prejudice in favour of the reuse of old buildings—for employment uses where employment is not wanted in the particular area, or against holiday or residential uses where that may be the only feasible alternative. The key is to tie the use to the land and create an economic lifeboat that inures to the benefit of the land management.

Further, we must stop perpetuating the "something for nothing" mentality in which countryside amenity, and possibly access rights, are regarded as public benefits but the management costs and risks that flow from them are those of the private owner. That is simply social discrimination and is unsustainable in its brazen inequity. We should make recreational land uses an intrinsic part of the rural economy and value it as such.

I thought that the noble Lord, Lord Geraint, would elaborate the following point. We also need to repatriate to rural areas a large part of the obscene differential between the value of primary produce to the producer and its cost to the consumer. That means more local processing and adding value at or near source to benefit the purposes of land use. We need to look at our temperate food imports and seek local substitution. Buying large percentages of imports simply exports the underpinning utility of our countryside and is also energy inefficient.

We need to make environmental payments a proper return on cost and risk of management, not some notional idea of opportunity cost on declining agriculture. Above all, we need to improve rural communications.

Agriculture and forestry uses are in decline, as a percentage of the economic rationale of the countryside. The Select Committee really seems to be highlighting the need for an alternative home-grown rural strategy, and as a matter of great urgency. Only in that way do we shield ourselves from future turmoil in CAP reform, and we must do it ourselves. The repatriation to member states of some ability within national envelopes gives rise to the suggestion that that may be a growing element.

Midnight

Lord Beaumont of Whitley

My Lords, Sub-Committee D, like the rest of us in the world who have anything to do with agriculture and the rural countryside—and that is everyone—found itself between a rock and a hard place. The rock is the WTO. It is a purely economic way of looking at things whereby eventually almost everything else will go by the board for the lowest economic price which the WTO can enforce.

The hard place is the desire to have a civilised combination of economic, environmental and social effects which we take for granted in everything else. If noble Lords cast their minds back about four hours, they will remember we were talking about regional reform. When that was being discussed, several times—and I noted at the time at least twice from the Government Front Bench—the necessity of having that tripod working was taken for granted: the environment, the economics and the social effects. That is in almost everything that we try to do.

In agriculture and in discussing the CAP over the past 30 or 40 years, we have started by discussing the economic side; recently, we have added the environmental side; and we have not added in the social side at all except through the much maligned—and quite rightly much maligned—CAP. It was extremely interesting that the report of Sub-Committee D did not, at any moment, discuss the social effects. It referred only to the economic and the environmental effects. I pay tribute to the members of Sub-Committee D because they had an extremely difficult job to do and they have produced a massive piece of work.

I pay particular tribute to the chairman who probably made the only speech this evening which represented the findings of his committee. He put them forward in an absolutely straightforward manner. But it was very much on the side of the rock and did not tend to go into the hard place.

It seemed to me that every speech since has tried to fill that gap between the two; has tried to bring out the matters which should be added to the basic WTO doctrine to produce something else which we all want. Different speeches made different points. There was almost always something with which I agreed as well as disagreed in every speech. But I do not believe that any speech stuck to the straight party line of Sub-Committee D.

In winding-up for my party tonight, I should like to acknowledge that we all suffer from that problem; indeed, my party is not separate from that in any way. We, too, are engaged in the work between the rock and the hard place and are involved in trying to find the things which we can do to give humanity and social effect to what is a very tough economic given.

I start from the assumption, as I am sure everyone in this Chamber does, that the rural environment is infinitely precious. I would also go on to say that I believe that it needs a high degree of population—although I know that I would part company with some in that respect—and that that population should be deeply connected in some ways with agriculture. The latter is not only an industry; it is also a vocation, an art and what ultimately gives rural life its character. In other words, one of the main charges that I level against this report is that while, thank God, the single-minded economic approach to agriculture and the countryside has by now taken on board, albeit grudgingly, the environmental factor, it still seems to be completely resistant to the social factor.

In paragraph 28 of the report the committee quotes with seeming approval the view that, nature and positive environmental benefits should be paid for as if they were crops", but nowhere could I find the idea that social benefit should also be paid for as a crop. That is not terribly surprising because, admittedly, the trouble with the CAP was that it went too far in that direction. Indeed, we have all reacted strongly against it. Nevertheless, it is something that we need. It is true that the NFU said that it had a vision of, a strong and diverse rural economy with well-balanced rural communities". However, in the light of the rest of its view, I feel bound to file that vision with one of "motherhood and apple pie"—admirable things about which we seldom need to do anything.

I believe, first, that food security is important for a nation and that we should grow as much of the food that we consume as possible—thus, incidentally, cutting down in the post-Rio world on the amount of wasteful international trade. Here I believe that I see eye to eye with the noble Earl. Lord Lytton. Secondly, in the over-populated world of the next century, it will be important for those parts of the world which are good at growing food to do so. As the method of growing the maximum amount of food with the minimum of harmful and resource-hungry inputs is through smaller holdings rather than larger ones, we must have a policy which will not bankrupt the family farm.

Again, your Lordships will be aware that, like the noble Baroness, Lady Nicol, and other Members of this House, I am deeply concerned about the welfare of farm animals. It is increasingly obvious that the way forward in civilised farming is towards more extensive methods applied in units, with a labour force which allows every cow, and almost every hen, to be known individually by those who tend them; as, indeed, was the case in most of our childhoods.

I found the evidence of Compassion in World Farming published in the report to be of extreme importance and was disappointed that the committee appeared to pay little attention to it. Other submitted evidence, to which it seemed to me that not enough attention was paid, was that from the Rural and Allied Workers section of the TGWU and, to a lesser extent, that from the National Federation of Young Farmers' Clubs.

One of the key paragraphs of the report seemed to me to be paragraph 16 on modulation, where the views of the European Landowners Organisation seemed to be given unnecessarily favourable treatment. It thought that modulation was opposed to efficient fanning and slanted towards small farms. The organisation was right about its second assumption; it is slanted towards small farms, and to a certain extent that is a good thing. I am not saying that there is a simple way in which this should be done. I am not saying that it should be a milch or cash cow. My noble friend Lord Mackie produced an extremely good example of a neighbour of his with only 50 acres who managed, by diversification, to survive. That is probably almost all that farmers ask these days; namely, that they should survive in the present economic situation.

We have fallen into the trap of measuring efficiency only as efficiency in cash. Efficient farming is that which looks after the countryside, treats animals well and produces the maximum food consonant with caring for the land and the environment. Of course it is important that farming provides a living wage for those who are involved in it, but the aim—as of all civilised life—must be to provide enough rather than to maximise income.

We have had a full day's work today and I shall not discuss at length many important issues I should have liked to touch on, such as the complexity of environmental schemes—where I agree that we should simplify—the need for better rural services, the need for social housing and the use of rural statistics.

I merely conclude by commenting that a world which tries to see that national agriculture is controlled by the GATT and the WTO, instead of by the need for a well fed population and a happy rural citizenry, is mad. The sooner we come to our senses the better for us, the countryside, our livestock and the world. I think this involves a certain amount of fudging and our finding a way through. It may involve a way which—as the noble Earl. Lord Lytton, said—takes advantage of what we think we can do in this country and the possibility of national envelopes.

I conclude by saying that I do not regard this report—though the work of a hard working and well meaning committee—as being a serious contribution to this essential aim. It is a statement of one of the two poles, and as such it is important because it shows us what we must make up our minds about. I do not think that anyone in this House has seriously made up his mind about it. I certainly did not detect that in any of the speeches I have heard. I look forward with great interest to hearing what the Government have to say.

12.12 a.m.

Baroness Anelay of St. Johns

My Lords, I too thank the committee and my noble friend Lord Reay for producing such a cogent and tightly argued report. When reading the committee's report I found myself agreeing with its views at just about every turn of phrase deployed to such good effect.

I shall not attempt at this late hour—it is actually an early hour of the morning—to cover every issue raised by the report as time simply does not permit that. I do not wish to undervalue in any way the importance of what the committee has to say by trying merely to comment briefly on each and every aspect. I hope that noble friends will be able to return to aspects of this report in debate and in Questions.

I note that the Government have published their response in advance of this debate. They have in large measure welcomed the report without, however, giving too much indication to the House of what they intend to do in practice to negotiate effectively to implement the committee's recommendations. Paragraph 2 of the Government's response states that, negotiations on the rural development regulation have recently begun". I look forward to hearing from the Minister what the Government intend to achieve by those negotiations and what timescale they have set themselves for concluding them.

As other noble Lords have pointed out, the timing of this debate is indeed opportune. It falls before the Council of Agriculture Ministers' meeting next week. It will be the last chance that the United Kingdom has during its presidency of the EU to make any real progress on the consideration of Agenda 2000 proposals.

However, the debate is also set against a backcloth of a year of great hardship for those involved in Great Britain and Northern Ireland agriculture and its related industries. In the past year farm incomes have dropped by 47 per cent. The Government's policy of high interest rates has wreaked havoc on the industry because of green pound revaluations. The recent revaluation a couple of weeks ago means it is likely that direct arable payments will be further reduced by up to 6 per cent. later in the year. Output prices are well down in 1998 and the situation continues to deteriorate. Earlier tonight the noble Lord, Lord Rathcavan, referred to Northern Ireland agriculture.

On Friday I visited Belfast for the Balmoral Show and I congratulate the organisers of that excellent event. There the industry accounts for 10 per cent. of civil employment and 8 per cent. of GDP, but the farm income average is a mere £5,000. The Ulster Farmers' Union pointed out to me that: The single biggest industry in Northern Ireland, the agri-food industry, is currently in its worst crisis in living memory. This is having a profound impact on the entire economy within the Province. Already large numbers of small businesses are having to cut their workforce numbers, which is greatly reducing the prospects of alternative employment for farmers and their sons". They also pointed out to me what they considered to be the possible severe impact that this could have on the outcome of any attempts at restoring peace to that Province.

The profitability of farming and horticulture is under enormous pressure throughout Great Britain and Northern Ireland. In many areas this in turn threatens both the ability of farmers to act as stewards of the countryside and their role of underpinning the economy of many rural areas.

We all had so much to expect from Agenda 2000, but when I read the committee's report I was not surprised to see that their main theme is one of disappointment. In paragraph 64 they say: We are disappointed that the Agenda 2000 Communication does not go anywhere near far enough to prepare the Community's agriculture for competition in world markets without continued protection. In paragraph 94 they argue that the contribution which the proposals in Agenda 2000 make to the process of rural development—which needs to be encouraged if the valued fabric of rural society is to be maintained—is relatively minor. Overall, the danger is that Agenda 2000 will be a missed opportunity—an opportunity to set out coherent and effective proposals for ensuring the successful development of food production and the success of the rural economy in the next century. As paragraph 68 points out: Adjustment to a competitive market is not simply a question of what happens within the farm fence. Paragraph 70 says: A move to a competitive agriculture will affect not only those products which are subject to the CAP but the delivery of environmental services which currently arrive (if at all) as a by-product. The rural development proposals are narrowly focused on agriculture. Will the Government guarantee to develop and implement an integrated rural development that is not based exclusively on agriculture? And how in practice will they structure this? Will the early retirement scheme, which was referred to earlier this evening, be extended beyond the beef industry? Will the Government undertake that they will not agree to any requirement that an increase in land holding should be a condition for qualification—as many of the holdings are economically viable?

The report highlights the importance of decoupling, as other noble Lords have mentioned earlier. It points out in paragraph 73 that United Kingdom environmental schemes are stringently drawn up and involve only a minority of farmers. Elsewhere in the Community, notably in Germany, funds have been allocated on "environmental" grounds to a very high proportion of farmers with very modest requirements in terms of changed farming practices. This raises the spectre that environmental policy may be perceived as a disguised form of support for production. Do the Government agree that it is essential that schemes are decoupled from production and do not form covert production subsidies?

The report also points out the dangers posed by cross-compliance. First, it can be used only in those areas where CAP provides direct income support—and these may often be neither the product areas nor the geographical regions in which the greatest gain from environmental expenditure can really be made. Secondly, the obligation on farmers to accept environmental restraints exists only so long as the policy survives. Other noble Lords have also referred to the problem that the cross-compliance would apply only to existing producers, and that once an environmental policy is tied to existing farmers it is likely to be used as an argument against change. Do the Government agree that this would seriously hinder a major restructuring of production which is needed to create agriculture which competes fully on the world market?

While all states are required in Agenda 2000 to implement environmental cross-compliance, it is neither clear what should be the standard of these conditions, nor how common levels of environmental protection will be achieved across member states. How do the Government seek to resolve this matter?

Finally on cross-compliance, member states may use savings generated by environmental cross-compliance, and by labour unit modulation, to fund agri-environment measures. But the detail of how funding may be switched from CMOs to agri-environment measures is unclear. For example, how reliable a source would such funds be to agri-environment measures?

It is also worth noting that the Commission proposes that member states should take appropriate measures to restrict payments in circumstances where recipients fail to demonstrate their active role in maintaining rural areas. How do the Government anticipate that this will be achieved without duplicating provisions for environmental cross-compliance?

When I spoke to a representative of the Tenant Farmers Association last week, he drew my attention to the danger that tenants could be locked out of environmental and rural development policy. He pointed out that UK tenant farmers' activities are bound by the agreement that they have already entered into. If they do anything outwith its remit—for example, tree planting—they could risk losing the tenancy. He would argue that tenancy agreements lock tenant farmers into agricultural activities alone. What account have the Government taken of this point in their negotiations so far? What note have they taken of the variation in the nature of farm holdings throughout Great Britain and Northern Ireland and their variation from the pattern in other member states?

United Kingdom agriculture, despite all its problems, still has many underlying strengths which we need to preserve and promote. It is a well structured industry compared with most other EU states. It has skilled farmers, farm managers and a workforce who can apply new technology to maintain and enhance the industry, if we give them the chance and the future to do it. Our young farmers are our future. I am reminded of the frustration expressed recently by a 32 year-old tenant dairy farmer, Craig Cochrane, who farms Richardson and Dyke near Darvel in Ayrshire. He said, "More than anything else, we need to get back some pride and motivation in what we do. I would rather have no subsidies and earn a fair price for my produce".

We all have a responsibility to fight for a future for farmers like Craig Cochrane, to fight for a future for agriculture and the rural economy. Consumers and producers alike, wherever we live, whatever we do, depend on each other. We do not need the countryside to become a glorified theme park. We need it to be a living, breathing, essential part of the whole economy. In this House we have argument and influence at our disposal. Only the Government have power—and of course participation in Agenda 2000 negotiations. If they fail there, they fail us all.

12.23 a.m.

The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Lord Donoughue)

My Lords, this has been an excellent debate, with constructive comments from all sides of the House, greatly assisted by the contributions from five—or was it six?—members of the distinguished committee whose report we have debated.

I should like first to thank the chairman of the committee, the noble Lord, Lord Reay, for providing me with a welcome opportunity to respond on behalf of the Government to the Select Committee's report and on such an excellent opening speech. The Government have already replied fully to the committee, so there is no need to repeat those points in detail. However, I hope to expand on our formal response to the committee and reply to some of the points raised. I deeply share the regret expressed by the noble Lord, Lord Reay, that so important a topic is debated so late at night. The noble Lord will understand the pressures of government business. I myself had an attractive appointment in Chelsea at 6.30 tomorrow morning; however, that prospect has receded as this debate has continued into the night.

I begin by congratulating the committee. The report is an excellent analysis of the European Commission's Agenda 2000 proposals and their importance to the United Kingdom. The written evidence makes interesting reading and highlights the wide range of interests that have been consulted. The committee's report is also timely; detailed proposals following the Commission's Agenda 2000 communication have now been received and negotiations on rural development regulation have begun, though these negotiations have a considerable way to go yet.

I broadly agree with many of the criticisms of the existing CAP—the Prime Minister's description of it as a "manifest absurdity" was quoted; it is typically mild and generous on his part—and the criticisms of Agenda 2000 have been expressed in the debate. I appreciate the acute difficulties being faced by many sectors of British farming at this time—though I should point out that our currency, which has been a major factor, can go down as well as up, as is demonstrated by much of the history of sterling over the past 50 years.

Before responding to particular points, it may be helpful if I say a few words about the Government's views on the common agricultural policy reform proposals on rural development. This is a very important element of the Agenda 2000 package. It provides a framework, bringing together environmental, forestry, structural and traditional rural development measures. The key problem is that more resources are required to enable the framework to bring increased benefits to the countryside. That can happen only if resources are made available by phasing out production link subsidies in the commodity regimes.

The Government therefore agree with the committee that the Agenda 2000 proposals do not go far enough to develop an agricultural industry in Europe able to compete effectively in world markets without subsidy. However, the Commission's proposals are a step in the direction that the Government have been advocating.

The rural development proposal lays down a framework from which member states would be able to determine programmes for implementation based on local priorities and covering seven years, from 2000 to 2006. Agri-environmental measures are compulsory, whereas all the other measures are optional.

This proposal would also permit a degree of flexibility in how the measures could be implemented in the United Kingdom. That is a matter to which the Government will be turning their attention over the summer. The outcome of the Government's comprehensive spending review will be an important consideration in this process.

Turning to the detail of the report, we welcome the committee's support for the European Commission's intention to simplify policy, and we note its view that support for the environment should be offered via the single menu. The Government believe that there are advantages in integrating schemes where the schemes have proved their value and where amalgamation will bring efficiency benefits and assist farmers. We shall look at this in the forthcoming review which the Ministry will undertake of the habitat, countryside access and moorland schemes with a view to integrating successful elements into the countryside stewardship scheme. The English ESAs have proved effective, though we shall reflect on whether in the long term they too could be amalgamated with the countryside stewardship scheme. Similar reviews have been undertaken, or are planned, by the other agricultural departments.

We agree with the committee's view, put again by the noble Baroness, Lady Anelay, that environmental payments must not be production subsidies in disguise and that we should aim to decouple support both for its own sake and to meet the developing arguments of the WTO. The Government believe that the most effective way of providing environmental benefits is through specific, well targeted environmental schemes which are properly evaluated and monitored. However, the committee must be aware that full decoupling from production may not be possible as some schemes may require a particular form of agricultural production to deliver environmental goods. An example is the need for grazing to maintain heather moorlands.

The Government agree with the committee's view that there should be a synchronised process of reducing production-related compensation payments and building up an environmental policy justified by its own merits. We are committed to the phasing out of production-related farm support and the redirection of some of the savings on CAP expenditure towards support for the environment and rural development.

The committee highlights the role for rural development to play in easing the social and employment problems which result from the continued decline in agricultural employment as well as from wider changes in the rural economy. The Government are determined to pursue sound economic policies for the benefit of the country as a whole and to help ensure a healthy and diverse rural economy. The creation of employment is one of the Government's principal priorities, and rural development policy must assist in creating sustainable employment opportunities. This involves a combination of national programmes and specifically targeted measures. National initiatives such as the New Deal for the unemployed are intended to help both urban and rural communities.

Earlier today this House approved the Second Reading of the Regional Development Agencies Bill, to which a number of noble Lords referred. RDAs will be region-wide bodies which are intended to take a coherent and integrated approach to the development and regeneration needs of their regions. This should be of considerable benefit to rural areas by ensuring that rural issues do not become marginalised. The same Bill provides powers to enable the merger of the Countryside Commission and the Rural Development Commission. The new body will provide a national overview on rural economic and social issues and will play a central role in the Government's objective of developing a sustainable living countryside.

The Government are pleased to note that the committee believes that the development of alternative economic opportunities must be supported. We agree that further diversification of the rural economy is a desirable objective. We have supported diversification of that kind under the Objective 5(b) programmes and domestic programmes. The Government will consider what further measures might be necessary in the context of the proposals currently being negotiated.

The Government are pleased with the committee's comments on the value of harnessing the enthusiasm of local partnerships and using the bottom-up approach to developing programmes. We note the committee's view on the need not to lose the expertise that exists in the Rural Development Commission. The Government recognise the valuable work of the Rural Development Commission, particularly at local level, and are determined to make full use of that expertise. RDC staff working on regeneration issues will transfer to the regional development agencies. RDAs will have a specific remit to serve the rural areas of their regions and, outside London, each board will have at least one member who can contribute a strong rural perspective. However, I note the concerns expressed by the committee and witnesses to it—emphasised by the noble Lord, Lord Middleton, with his great expertise in this whole area. I can assure him that we are negotiating for rural areas to receive a fair share of support from Objective 2 schemes.

The Government agree with the committee's view that the mark of a successful rural development programme is that after time it becomes unnecessary. The aim of rural development policy under Agenda 2000 should be to enable the rural economy to cope better with adjustments to the economic base of and quality of life in the targeted areas. As now, programmes will continue to be monitored for effectiveness and designed to be flexible to allow room for adaptation as circumstances require.

I should like briefly to turn to a number of points raised in the debate. Modulation was brought up, particularly by the noble Lords, Lord Reay and Lord Inglewood. The Government made clear in their reply to the Select Committee that they do not welcome modulation. We have forcefully opposed the proposal for a Europe-wide ceiling because that would have a disproportionate adverse effect on our own farmers. We have, however, signalled that if other member states want to modulate payments to their own farmers under subsidiarity provisions, the United Kingdom would not stand in their way. But that is firmly on the condition that our agricultural sector does not lose out.

The noble Lord, Lord Reay, referred to the need for a national body to advise on redundant building conversions. I am sorry if we appear to have misunderstood the committee's recommendation on the need for advice on planning applications for redundant building conversions; nevertheless I can assure the noble Lord that the merged Rural Development and Countryside Commissions will be well able to advise us on policy in relation to such applications.

My noble friend Lady Young of Old Scone referred to the sheep regime not being tackled by the proposals and we agree that the Commission missed an opportunity to put forward proposals to reform the sheepmeat regime. But the Government will continue to press for reforms in that as well as other sectors where proposals for reform are equally absent or inadequate.

The noble Lord, Lord Mackie of Benshie, referred to green pound evaluations. I must point out again, as we often have to point out to commentators in this sector, that European money is simply not available for us to take in order to compensate farmers. The Fontainebleau abatement means that even European money represents a cost to the United Kingdom Exchequer of some 71 per cent. of the total available, and in this year alone that would have cost over half a billion pounds. We must take that into account. Other member states do not have to think about that effect and since Fontainebleau there has not been a level playing field in that respect.

I particularly agree with what the noble Lord, Lord Willoughby de Broke, said about simplification. I made a passing reference in my speech to the fact that we certainly need simplification both for the existing consultative bodies and for the environmental schemes on offer.

The noble Lord, Lord Grantchester, referred to the Cork conference. It is true that that conference in 1996 raised expectations of support for rural development which have not been sustained into the Agenda 2000 reforms. But it is still the case that the rural development proposal offers a framework within which, over time, resources can be shifted from the CAP to rural development or to environmental measures, as production support is reduced, as we believe it must be.

The noble Lord, Lord Geraint, referred to a newspaper report about European aid to Namibia. I shall need to check on that and will write to him about it. But I may not be able to comment on the detail of the story, and he will be aware that modern British newspapers are not strong on facts.

The noble Lord, Lord Palmer, referred to industrial crops and bio-fuels. I agree with him completely that it is an area which needs more work and more research. The department is currently looking at that and we have also used Objective 5(b) schemes to encourage alternative crops such as those for energy. He will be aware that there is a possibility for more of that under the rural development proposal.

The noble Lord, Lord Inglewood, referred to agri-monetary compensation, one of the most important points facing Europe, this country and this Government. I can only promise him that we will negotiate as vigorously as possible to protect our farmers from discrimination in any new measures proposed when the existing schemes terminate later this year. However, tie understands better than most how the business works out there. We are part of the minority—the out of the pre-entry minority—standing outside the single currency. That is not perhaps the ideal negotiating position.

The noble Baroness, Lady Anelay, raised a number of questions at this late hour. I can promise her that I shall write to her when I am more refreshed.

In conclusion, I strongly commend the report to the House.

12.42 a.m.

Lord Reay

My Lords, the last thing that any noble Lord present will wish to do now is to listen to another speech from me. However, I should like to say how grateful I am to all those who took part in the debate and also for the fact that so many should have taken part at such a very inconvenient hour on a Monday night and with fairly short notice. It reflects the wide recognition of the importance of the subject.

There was a large measure of agreement in the debate. A few reservations and caveats were entered into with regard to the report. The noble Lord, Lord Mackie of Benshie, found a weakness, my noble friend Lord Middleton found a wobble and the noble Lord, Lord Beaumont of Whitley, found that we ignored the social policy. If my noble friend Lord Middleton still does not understand why there was a wobble, I will explain it to him afterwards. However, I feel that I should say something to the noble Lord, Lord Beaumont of Whitley, now.

His criticism that we ignored social policy I do not find to be fair. In the evidence section, paragraphs 48 to 51 deal with rural services and rural communities. Social exclusion was a marked concern is the introduction to paragraph 51. We go on to quote later in that paragraph, There is no point in having jobs if there is no local affordable housing". If one turns to the conclusions, paragraph 105 says, Rural development policy must seek to ease the social and employment problems which result from the continued decline in agricultural employment as well as from wider changes in the rural economy". Other paragraphs also take up aspects of social policy. Therefore I do not believe that it can truthfully be said that we ignored social factors and considerations in the report.

I would like to thank all noble Lords who spoke kind words about me or the committee. I am also grateful for the support of the Front Benches and for our Front Bench speech which was very gracious towards the report. I also appreciate what the noble Lord, Lord Donoughue had to say. He gave a careful reply, not without some wit even after midnight. The reply will need further study. I am grateful to him for taking up the questions and points that I and other members of the committee raised. I commend the Motion to the House.

On Question, Motion agreed to.

House adjourned at fourteen minutes before one o'clock.