CAP Reform: ECC Report

HL Deb 25 November 1999 vol 607 cc584-618

3.24 p.m.

Lord Reay

rose to move, That this House takes note of the report of the European Communities Committee on A Reformed CAP? The outcome of Agenda 2000 (8th Report, Session 1998–99, HL Paper 61).

The noble Lord said: My Lords, this afternoon we move from the partisan hurly-burly—even at moments it seemed the partisan fury—of a debate on the Address in the new "reformed" House of Lords to what I hope is the serener atmosphere of a debate on a report from one of your Lordships' all-party European sub-committees. The subject of CAP reform, although of very considerable importance, is one on which there is little difference in fundamental policy between the political parties in this country. Accordingly, there was not much trouble for us in producing a unanimous report.

I should like to start by paying a tribute, and placing on record my thanks, to some absent friends. Four of the members of the sub-committee that produced this report were hereditary Peers who have not survived into this Session and so are prevented from taking part in our debate today. These are my noble friend Lord Gisborough, and the noble Lords, Lord Grantchester, Lord Rathcavan, and Lord Redesdale. Their contributions to this inquiry, and to others before it, were immensely important. The House will miss them and I hope that we shall see them back here one day.

I should also like to thank the rest of the sub-committee for their invaluable support, as well as our specialist adviser, Professor John—now Sir John—Marsh, a much loved and admired veteran of many a House of Lords committee inquiry, whose intellectual grasp, robust free-market philosophy and lucidity of thought and expression I hope is reflected in this report. Finally, I should like to thank our Clerk at that time, Mr Jake Vaughan, a young man wise beyond his years.

The subject of CAP reform is one that Sub-Committee D has had to live with for some time, largely of course because it never takes place—at least in any measure that we would consider adequate. When the Commission brought forward its Agenda 2000 proposals two and a half years ago, we conducted an inquiry which focused principally on the agri-environment and rural development measures contained in those proposals.

However, we took time to express in our report disappointment with the failure of the proposals to go anything like far enough to prepare EC agriculture to enable it to compete in a world without subsidies, and towards making the CAP, in the words of the Prime Minister—which we quoted in the report— less of a manifest absurdity which discredits Europe". The report we are debating today was produced some 14 months later, after we had briefly interrupted our inquiry into organic farming in order to see what the Commission's Agenda 2000 proposals looked like once they had been through the Council of Ministers and once they had received the final seal of approval from the Heads of Government at the Berlin Summit in March.

We had a single evidence session with the then Minister with agricultural responsibilities in your Lordships' House, the noble Lord, Lord Donoughue, who was accompanied by an extremely capable official from MAFF, Miss Kate Timms, Head of the Agricultural Crops and Commodities Directorate, and we are indebted to them both.

We found that after a long period of negotiation the Council of Farm Ministers finally reached agreement on 11th March this year on a package that represented a considerably less radical reform than that originally proposed by the Commission, with concessions having been made to the anti-reform forces in all commodity sectors. Indeed, so disappointing was the outcome at first seen to be in this country that the Prime Minister's spokesman virtually disowned the deal reached by his Minister of Agriculture and promised a better result when the Heads of Government met in Berlin later in the month.

However, the Berlin Summit produced an even weaker reform package. Noble Lords may remember the way in which President Chirac, himself a former French Minister of Agriculture, single-handedly renegotiated the CAP deal right through the night. I myself suspect that his triumph was only possible because it was considered essential to maintain French co-operation during the Kosovo crisis and the NATO action against Serbia. So the abandonment of a more viable CAP reform emerges as another melancholy consequence of that expensive intervention.

Appendix 2 of our report sets out the details of the Berlin deal and compares them with the Commission's original proposals. There will, of course, still be cuts in commodity intervention and support prices, although in the case of dairy products, these are not to start until 2005. Milk quotas are not to be touched until 2006. The cuts in support prices enable the Government to argue that the agreement will benefit the UK consumer to the tune of £1 billion a year once the reforms are fully implemented in 2008. However, these cuts are offset for the farmer by increases in direct payments which will cost the taxpayer up to 50 per cent of the savings to be enjoyed by the consumer. Moreover, the length of time over which the price cuts will he introduced will make any fall in consumer prices virtually imperceptible. Many of the regimes, such as the sugar regime, for example, will remain untouched. So consumers will continue to pay far more than they need for food.

We are left with a deal that we and the committee consider to be deeply disappointing. It sends the wrong signal to the farming industry, thereby misdirecting investment which is bad for the Community's taxpayers and consumers, and leaves a CAP that will have to be reformed again, as the Minister agreed, before enlargement of the European Union can take place.

The incompatibility of the existing CAP with the completion of the enlargement process is moving into ever-closer focus, especially since the President of the Commission announced last month to the European Parliament that the Commission would recommend to the Helsinki European Council in December the opening of accession negotiations in 2000 with the second-wave applicant countries of Bulgaria, Romania. Latvia, Lithuania, Slovakia and Malta.

The irresistible force is moving ever closer to the immovable object. What is the Community to do? Is it to extend agricultural price support to those countries as well as to the first-wave applicant countries—Poland, Hungary, Czechoslovakia, Estonia and Slovenia—thereby pushing up agricultural prices in those countries and, as a consequence, depressing consumption and at the same time stimulating production there? Is it also to extend direct payments—arable area payments, headage payments and so on—to the farmers of those countries at untold cost to the Community's taxpayers? Or instead will it force the applicant countries to accept a two-tier CAP in which £30 billion continues to be spent each year on the farmers of the present 15 member states of the Union but none, or vastly less, on the farmers in the new member states? Such an arrangement would make no economic sense and would be like scrapping subsidies to less favoured area in this country and replacing them with subsidies to the south-east. That is why we say that there needs to be further CAP reform before enlargement can take place. Judging from their reply, I believe that the Government are still of that opinion. Even for transitional arrangements to be feasible, there needs to be a commitment to reform.

Parallel to the pressures for reform resulting from the approach to enlargement are those from the new WTO round of negotiations due to start next week in Seattle. The CAP's production-distorting subsidy regimes will certainly come under attack, and the expiry of the peace clause in 2003 will give other countries the chance to challenge the compatibility of the CAP with existing trade commitments, let alone any commitments that may be negotiated in future. Any deal seems certain to result in further CAP reform measures, as last time, but whatever they are, their effect on the ground is, on past experience, at least five to 10 years away.

The CAP is widely seen to have damaged the environment by its over-stimulation of production. An effective redirection of some of the resources currently dedicated to production towards the protection of the environment should be likely to meet with general approval. We welcome the fact that the Berlin agreement contains a new rural development regulation which brings together rural development and agri-environment measures, and that member states will be required to offer farmers agri-environmental programmes, such as our Countryside Stewardship and Environmentally Sensitive Area Schemes. However, we deplore the imbalance between the amount of money available from the Commission for such schemes, which we calculate to be some £8 million plus, and the £3 billion spent annually in this country on the CAP regimes. The amounts available for environmental purposes are, in our opinion, pitifully inadequate.

Cross-compliance, or the attachment of environmental conditions to the payment of CAP subsidies, is permitted under the agreement and, on the face of it, might be an attractive way to have an environmentally friendly policy at little expense. However, as a committee we have always been opposed to lending production payments a spurious legitimacy in that way. I am pleased to see from their reply to our report that the Government think likewise. We feel that it would simply further entrench the existing production subsidies and that environmental goals should stand, and be paid for, in their own right. Also, as the element of incentive to the farmer is absent from such arrangements, the policing of these unpopular conditions would require an ugly new bureaucracy.

But there may be other ways in which the agreement gives discretion to national governments to develop resources for environmental schemes. One such is modulation, where within a national financial envelope, national governments may reduce by up to 20 per cent the production subsidies paid to farmers, according to certain criteria. If I understand it correctly, production subsidies could be reduced by up to this percentage across the board to all farmers within a member state, and the proceeds, provided they were matched by funds from the national treasury, could be used to boost agri-environmental schemes. When the Minister winds up perhaps she can confirm whether that is the correct interpretation and, if so, whether the Government have yet taken a decision to move in that direction. Perhaps the Minister can also indicate what other decisions the Government have taken so far in those other areas where they have freedom to exercise national discretion.

The Government have also argued that the Berlin deal, which covers the future financing of the Community as well as CAP reform, was good for Britain because Britain was able to keep its Fontainebleau rebate. We say that it would be better to reform the CAP and remove the main reason why the rebate became necessary in the first place.

We hope that further reform will come. It would be better for agriculture itself in the long term if efficient farmers were given the chance to compete freely in the world—there is much efficient agriculture in this country and in Europe—and if the less efficient received support in a form which the public were happy to endorse. There are reasons to believe that real reform must come one day, but it has not come yet, and I am beginning to ask myself how many of us will still be alive to see it happen. I beg to move.

Moved, That this House takes note of the report of the European Communities Committee on A Reformed CAP? The outcome of Agenda 2000 (8th Report, Session 1998–99, HL Paper 61).—(Lord Reay.)

3.38 p.m.

Lord Tomlinson

My Lords, the Select Committee, in particular Sub-Committee D and the noble Lord, Lord Reay, are to be congratulated on having produced a most cogent report. In so far as the EU gets the agricultural aspects of Agenda 2000 wrong, it creates circumstances which will make enlargement of the European Union to the east not only more difficult politically but more costly financially. This is one of the reasons why the report is so timely.

In his evidence to the Select Committee, the noble Lord, Lord Donoughue, said of the Berlin agreement: We believe the outcome represented a greater step in the direction of reform of the European Union Agricultural Policy than in fact had been achieved in the last two decades". That may well be so. If it is correct it is a clear critique of the lack of any real action in the past two decades rather than words of praise for what happened in Berlin.

I have no doubt that the Agenda 2000 deal struck in Berlin has some marginal benefit, even for consumers. I also have no doubt that my right honourable friend the Prime Minister would have liked a substantially more radical outcome. But when one concludes with an agreement where the European Council itself is less radical than agricultural Ministers, and agricultural Ministers are less radical than the Santer Commission, perhaps one can say with reasonable confidence that the Berlin solution will prove inadequate to deal with the problems.

As the noble Lord, Lord Donoughue, said in evidence to the Select Committee, it is very hard to identify specific improvements between Brussels and Berlin. In a number of areas, it could be argued that matters went the other way". In respect of each of the criteria examined by the Select Committee there remains cause for concern. Do the Agenda 2000 proposals promote economic efficiency? Far from it. I believe that they enshrine economic inefficiency, mock the market mechanism and leave burdens to be borne by farmers despite a high level of subsidy which exceeds the total that goes to the rest of British industry. It even further burdens consumers; and it is costly to the budget, failing producer and consumer alike, serving, as I said earlier, to enshrine economic inefficiency.

Does the CAP reform facilitate enlargement? Far from it. I believe that it threatens enlargement. It shackles the European Union financially; and to extend the costly agricultural regimes to current lower cost producer applicant countries would be prohibitive budgetarily in circumstances where there is unlikely to be any agreement to change the own resources base of the European Union. That means that fundamentally it threatens enlargement itself.

Do the so-called reforms of Berlin help us to meet our international obligations? Again I agree with the noble Lord, Lord Reay, and the report that the response must be in the negative. We who are possibly not honouring our existing WTO obligations are producing substantial obstacles with the Berlin agreement to the radical response that we expect to see coming from the next WTO round. I believe that we have already placed obstacles to progress in Seattle. It requires no vision to see that we have worsened our relationship with the Cairns group; and we shall start with an immediate battle as soon as Seattle opens.

Does it enhance and protect our environment? Looking at the Berlin Summit agreement, there are no reasons to suppose that it will do so any more in the future than in the past.

One could continue. The so-called "reforms" fail adequately to limit over-production in agriculture. This leads to the continuation and extension of subsidised disposal of surpluses which in turn distort world markets, and damage the third world and its aspirations to self-sufficiency. The surpluses and their disposal are a standing invitation to fraud and the fraudsters.

We in the United Kingdom often talk about the need for the European Union to fight fraud more vigorously. Are we necessarily doing that as well as we could in our own country? Our Intervention Board was criticised substantially two years ago by the National Audit Office and the Public Accounts Committee. I ask the Minister to consider whether in her opinion the recently advertised post for a head of the anti-fraud unit of our own Intervention Board is likely to be adequate. The salary offered is £30,000-plus; and a person is sought with his or her own motor car which can be available for work. That seems a rather pathetic response to the issue of dealing with fraud. I do not necessarily ask my noble friend to reply today. However, perhaps the noble Baroness will look at the matter in a more leisurely way and give someone at Reading the invitation to pull his or her finger out and get on with the job of being as vigilant in the public interest in the United Kingdom as we always demand that Brussels should be.

It is a valuable report. In getting agricultural reform wrong we shall damage the European Union budget, our interest in enlargement; the third world interest; the fight against fraud, and our interests in the next World Trade Organisation round. That is a flush hand that no government should be proud of holding.

Berlin leaves no room for complacency. Agricultural reform must remain a constant objective of the Government. But sooner rather than later the rhetoric of reform needs to be matched by quality of decision.

3.46 p.m.

Lord Jopling

My Lords, I declare an interest in that I am a farmer in the north of England. All noble Lords who have been associated with the Select Committee would like to say how grateful we are for the kind and generous remarks of the noble Lord, Lord Tomlinson, about the report and the committee so ably led by my noble friend Lord Reay. It is a great disappointment that he will no longer be chairman in the future.

All my life in Parliament—it is now quite a long time—I have heard people talking about the need to reform the common agricultural policy. Having spent four years of my life at one period as a member of the Council of Agricultural Ministers, I can describe trying to get sensible reforms to this centrepiece of the activities of the European Union as horse work. The management of the common agricultural policy has been dogged forever by a long history of total irresponsibility in the way that prices have been set. Over the years, the problem has been that prices were increased in order to provide a continuing livelihood for inefficient farmers, usually in some other countries of the Community other than our own. At the same time those increased prices provided an attractive incentive for efficient farmers throughout Europe hugely to increase production and create the surpluses which have bedevilled the whole system.

The divergence between efficient and inefficient farmers does not necessarily mean large or small farmers. Other factors so often come into the issue. For instance, some farmers find themselves borrowing heavily. They need higher prices in order to compete with efficient farmers who do not owe anyone anything. One has always had, as it were, two different industries within one according to the amount of borrowing by individuals.

At the same time, the CAP has long been bedevilled by the fact that many member countries could merrily agree to irresponsible price increases with the happy knowledge that those higher prices were costing their own national budget nothing. At the heart of the problem, as it has been since the beginning of the CAP, is the tragedy that the increased costs of the CAP did not cost each state at least something. So often, they have been able to agree to higher prices, knowing that they would receive all the benefits and incur none of the cost. Therefore, of course they have always held up their hands to vote for higher prices. It is the higher prices that have created the surplus and the run-away expenditure that has caused nearly all of the difficulties.

In that context, I have always marvelled at the unashamed way in which some Ministers pursue totally irresponsible policies towards the CAP. I shall give just three examples. I remember the time when the German Minister totally refused to contemplate accepting—even to the extent of threatening the veto—any reduction in the level of support prices. Happily, that attitude is now behind us and a reduction in support prices is on the agenda, which in the days when I was involved with the Council was not contemplated by the Germans or others who covered themselves in the skirts of the Germans. A second example was the unashamed way in which, on one occasion, Luxembourg Ministers showed us huge new plantings of vines in the Moselle Valley at a time when we were struggling to find a way of controlling the massive cost of the wine lake surplus with which we were all faced. The final example was our old friend the tobacco regime. Hundreds of millions of pounds were spent in producing varieties of tobacco which had no known demand anywhere in the world. There cannot be anything more lunatic.

As I said, it has been horse work attempting to introduce some responsibility into the CAP over the years. No one knows that better than my noble friend Lord Williamson, who has massive experience as Secretary-General of the European Union. We look forward to hearing his comments. I recall, in 1986, when the British presidency was in existence, having to keep the Council of Ministers in continuous session for 91 hours in the face of Christmas in order to inject some form of responsibility into the milk, grain and beef regimes.

In recent years we have seen a gradual move towards more responsibility. The runaway financial burden has been gradually brought under better control. It has a very long way to go. It has been brought under control mainly by means of budget controls imposed by the council of the Heads of Government. It has been helped by a number of other issues, not least various approaches to encourage the environmental policies of the common agricultural policy which are so important and need to be encouraged.

Now we are embarking on yet another effort, following the faltering attempts to bring about the proposals of Agenda 2000 at Berlin. We have now moved on to the Seattle talks, which are the precursor of the new world trade round. In those talks, the CAP will be a major target for negotiators from the United States and the Cairns Group. Their prime target in the talks on the agricultural sector will be the European Union's export subsidies.

My message to the Government is that I hope they will be very tough with the United States in particular, whose representatives like to give the impression that these unfair subsidies exist only in Europe and that the United States is squeaky clean. Many noble Lords will know of my political connections with the United States. I have had the honour to be secretary of the British-American Parliamentary Group for the past 12 years. There is no greater friend of the United States in this House than I. However, at the same time I believe that the United States should be sharply criticised where it deserves criticism. In passing, perhaps I may say that I have never understood how Canada has the gall to be a member of the Cairns Group; over the years it has had its own farm subsidies and yet happily criticises European subsidies.

A point that is not generally understood is that farm subsidies in the United States are greater on a farm-by-farm basis than they are in the European Union. That surprises a considerable number of people. The farms are bigger, but they receive more money in subsidy than farms throughout Europe. The United States applies massive farm subsidies. Perhaps I may give an example. In the Agricultural Appropriations Bill signed by President Clinton on 22nd October last, a total of over 69 billion dollars was consigned under the farm appropriations programme. That included almost 9 billion dollars for what was described as emergency farm aid. That is on top of 16 billion dollars already paid out in 1999.

I hope that the Government do not allow the Americans all the best arguments. We should be prepared to point out the massive scale of agricultural subsidies in the United States during the period that I have mentioned. I hope that the talks that are beginning to take place in regard to the world trade round will be successful and will carry on the gradual work of bringing the CAP under control. However, I rather suspect that the final words of my noble friend Lord Reay are true. He doubted whether that would happen in his lifetime. I doubt that it will happen in my lifetime either.

3.58 p.m.

The Duke of Montrose

My Lords, it is with some trepidation that I rise to speak today, in the midst of so many noble Lords who have spent years looking at the broad perspective of agriculture, and at the CAP and the support that it receives. I have been involved for most of my life in livestock production and spent nine years on the central council of the Scottish NFU, so my perspective may be slightly more constrained. I was interested to read the report and pleased that the issues were so clearly outlined. It sets out the criteria that presumably the UK Government would like to pursue.

It will assist my argument to repeat the criteria which were declared for the CAP and I hope that your Lordships will not mind if I do so. They were similar to those declared at the beginning of the policy in 1962 and I took them from the Agenda 2000 report, which your Lordships will have read. The first aim is to improve competitiveness—which, although it may not be effective, is a stated aim—to achieve lower prices and deal with food safety and qualify. The second aim is a fair standard of living for the agricultural community. The third is to achieve stability for farm incomes. The fourth is the integration of environmental goals. The fifth is to provide alternative income and employment opportunities for farmers. The sixth is to contribute to the economic cohesion of the European Union.

The common agricultural policy has come a long way from its beginning. I obtained from the Library figures issued by the ILO. As regards the earlier criteria, the available figures relate to agriculture, forestry and fishing, but I shall concentrate on agriculture. They show that in, say, France in 1946 7.5 million people were employed in agriculture. The latest figures—those for 1994—show that 1 million people are employed. Your Lordships can see that a massive change has taken place in France's economy. Similar figures relate to Germany, but in the UK the number of people employed in agriculture has decreased from 1.1 million to 0.6 million.

In terms of a percentage of the employed workforce, in France the number has fallen from approximately 40 per cent to 4.7 per cent and in the UK from 6 per cent to 2.1 per cent. The scale change has been similar in both countries, although the French are perhaps a generation behind us in reaching the desired levels of efficiency.

In the EU, the average employment in agriculture is 5.5 per cent. According to the Agenda 2000 report, a fall of 2.3 per cent per annum is envisaged during the next 10 years. That scale of change, from the historical perspective, is equal to that I described earlier.

The rate of social and economic upheaval which the rural economy can withstand should be at the forefront of our thoughts when considering any changes to the CAP. I am not in a position to propose the policies which that criterion should engender, but we must pay great attention to it. If the policy as outlined in Agenda 2000 is to achieve such a change, we cannot dismiss the plan for reform even if we wish it to be modified and produce better results.

That is not to say that there is an easy solution to the present crisis. The forecast on which the Government's policy is proposed appears to be, in world terms, an increase in demand and firm agricultural prices. But we must contrast that with the present UK price collapse which will require some genius, as well as much money and effort, to remedy.

I should like to believe that when we go to the WTO meeting, that when the Government consider future policy, at the head of our priorities should be that the change should always be sufficiently graded so that the rural economy and those who gain a livelihood from it have time to adjust.

4.3 p.m.

Lord Willoughby de Broke

My Lords, I thank my noble friend Lord Reay for his chairmanship of our sub-committee. I join him in thanking our specialist adviser, Professor John Marsh, for his lucid exposé of some of the problems which face the CAP.

The report is short, concise and says it all in a few pages. However, like my noble friend Lord Jopling, I am a little depressed. In preparing for the debate, I looked back on 10 years of reports on reform of the CAP. We had reports in 1991, 1994 and 1996. I was a member of the sub-committee which reported in May 1998 and we have the latest report before us today. We have five reports; we have listened to vast numbers of witnesses laboriously interviewed; we have bookshelves of documents and written evidence; and we have thoughtful and well-written conclusions after hours of committee time. But to what end? Here we are, still talking to ourselves. No one else seems to listen to us.

The Government, in their response to the report, state that they are distressed by the lack of progress and that reform is needed now. The previous government and the government before them said the same thing, but I hear no echo of it in Paris, Berlin, Madrid or Athens. I am afraid that all the evidence shows that we are talking to ourselves; no one else listens. Our competitors, or partners according to one's taste, seem determined not to change anything. There may be an environmental tweak or a nod towards an "integrated rural policy"—whatever that may mean—but that is all. The message is loud and clear: reform is not the plat du jour—it is not even on the menu.

What kind of signal does that send to the candidate countries of eastern Europe? When enlargement first appeared on the political agenda, there appeared to be general enthusiasm to see the newly democratic eastern European countries "come home". That was the buzz expression. As my noble friend Lord Middleton said in a speech in this House on one of his own reports—he was then chairman of the Select Committee: I have mentioned our 1994 report on the trade agreements with the CEEC and our conviction that no enlargement was possible without CAP reform".—[Official Report, 15/10/96; col. 1600.] In the same debate, he went on to say (at col. 1603): If it is envisaged that accession by the CEECs should begin in the year 2000, discussions on detailed CAP reform are needed now". And so we go on.

However, as our report notes, the enthusiasm for enlargement seems to have evaporated. So-called "reforms" agreed in Berlin earlier this year do nothing to resolve the underlying problems. Meanwhile, the negotiations on enlargement grind on, rather like a lorry sinking into the sand very slowly. Some EU governments are telling us that it will take five, seven and even 10 years before some of the candidate countries are full members of the EU.

As the noble Lord, Lord Tomlinson, pointed out, the unreformed CAP is alive and well, and without reform there can be no enlargement. That seems to be perfectly clear. Most of the economies of the candidate countries are agricultural and the EU cannot afford to pay them the huge IACS payments which it makes to current members. Here, I declare an interest as a farmer and recipient of IACS payments.

So how is the circle to be squared? Are these countries to be offered a different, second-class deal to abide by CAP conditions, but not receive the subsidies—to implement in all their stifling and expensive detail the provisions of the acqui communautaire? And if the candidate countries are to be offered or forced to accept a different deal, because we cannot have enlargement with an unreformed CAP, surely that opens the door to present members of the EU to negotiate a special, separate deal.

If that is the case, we should seize the opportunity seriously to consider repatriating British agricultural policy to this country. We in Britain would then be able to decide how we want our agriculture to be developed and where we want to go with it. We should then have a chance of putting into practice what has for many years been recommended by the committees of your Lordships' House. After all, those recommendations have been endorsed by successive governments. They are the progressive elimination of milk quotas; the progressive reduction of production support payments; area payments to upland or less favoured areas rather than headage payments—they have been economically and environmentally disastrous, as we are now seeing with the low sheep prices; and, over time, a substantial and eventually complete transfer of funds from production support to environmental support.

All those goals are attainable and, if we were to achieve them, the funds are of course available. At present, as your Lordships are well aware, our gross contribution to the EU budget is about £9 billion per year. Broadly, about half of the EU budget is spent on the CAP. Therefore we should have about £4½ billion of our money to spend on our own agricultural environment. That amounts to about £85 million per week, which seems to me a fairly tidy sum.

In that way, with one bound Jack would be free. We should escape the iron grip of the CAP. We can reshape our agriculture; our environment would become more WTO compatible; and this Government would be able to enjoy telling our partners in Europe that we no longer require an agriculture-related rebate. That is something very communautaire to be able to tell our partners, if that is what we want to do.

The Minister is smiling, but I ask her to take this matter seriously and to think about it, as we are often enjoined to "think the unthinkable". Will she consider setting up a small MAFF think-tank and, if necessary, shut its members up in a room with an urn of Ministry tea until they come to a conclusion? Thinking the unthinkable is often the way forward. Today's impossibility is often tomorrow's reality.

Lord Williams of Elvel

My Lords, before the noble Lord sits down, can he explain to the House how we should withdraw from the common agricultural policy without withdrawing from the European Union?

Lord Willoughby de Broke

My Lords, I should be delighted to try and explain that, but it would take rather more time than I have in this particular debate. However, as the idea of withdrawing from the common fisheries policy has already been floated, I am sure that the same sort of negotiations would pertain in this case.

4.11 p.m.

The Earl of Selborne

My Lords, I begin, as other noble Lords have done, by declaring an interest as a farmer. I am chairman also of the Agricultural Mortgage Corporation. Like others, I congratulate my noble friend Lord Reay and Sub-Committee D on a clear, succinct and totally convincing report. Like others, I have served on the committee, in 1991 and 1994 and therefore, like others, I share a sense of déjà vu and depression. However, rather than repeat a litany of everything that has gone wrong in the past, it is probably about time to determine where we go from here. I follow the implied criticism from the noble Lord, Lord Williams, that repatriation of the common agricultural policy is not likely to get us anywhere.

Leaving aside the whole concept of how it is compatible with European Union membership, we must determine that agricultural policy in Europe be competitive. That is the problem with the common agricultural policy. It foists us into a high-cost production system which means that when we try to export into third markets, or if we were to reduce tariff barriers for greater access—as the WTO will almost certainly succeed in doing—we find ourselves uncompetitive even in our own home markets.

What is in the United Kingdom's interests? We did all the hard work from 1947 onwards. The Labour administration of the time—who, I must admit, were excellent—produced the Agriculture Act which set up agriculture in this country in a way from which it has benefited for a long time. It was based on strong capital reinvestment with capital improvement grants, a strong research and development base and an acknowledgement that we could not carry on having small farms, on which the rest of Europe was prepared to rely; we had to achieve economies of scale. The national plan of George Brown's time followed further the policy of ensuring that the United Kingdom had a policy competitive with other countries in the world.

We were doing well until we joined the common agricultural policy when, as farmers, we could not believe our luck. We found ourselves receiving production support on a scale which certainly was not available under the old deficiency payments. We found ourselves locked—unwisely, as it turned out—into a much higher-cost production system than was perhaps necessary, having done so much hard work to achieve those economies of scale. We now find ourselves, as part of Europe, priced out of markets by America and by other production regions around the world. It is in our long-term interest to address that and to try and return to a system in Europe through which we can be competitive.

Paragraph 10 of the report reminded us that, One of the goals of the CAP as set out by the Commission is to make EU agriculture internationally competitive". That is of course a massive joke. It should be an aim, but everything recommended by the European Union Commission and endorsed at Berlin made that even less likely to be achieved. That is the fundamental issue which needs to be addressed. Sub-Committee D has said before, and I am sure that we shall say again in this report, that until we acknowledge that a common agricultural policy must accept that the WTO, and previously the Uruguay Round, will inevitably require freer trade in agricultural produce, we are simply missing the point. If do not recognise that fact then we are missing the point.

That does not stop us rebalancing the income streams. I agree entirely that we need to try and get funds, be they recycled common agricultural policy funds or funds from elsewhere—I mind not what—for new goods. If we as managers of land can devise environmental goods which can be paid for separately—I agree entirely with my noble friend Lord Reay that they should not be bolted on as a sort of add-on in cross-compliance with the production support—if we can determine new markets for access, new habitats and biodiversity schemes; all highly worthy projects for which we have had a number of excellent pilot schemes, that would be a desirable way of adding a bit of cream—if that is the right word—to what is currently extremely diluted milk.

We need to recognise that the reason the Berlin Summit rejected even the preposterously extravagant plans of the Agriculture Council was that it simply could not face up to the implications of lower world prices—which we see inevitably happening—and the decimation of European agriculture. That is where we, as so often is the case, have a slightly—although not totally—different agenda from the rest of Europe because, as I say, we have achieved certain economies of scale, we have invested more heavily than many countries and should have a little more confidence than many of the more marginal areas of Europe.

Therefore we need to address the real issue, which is that no farmer will be able to cope, either in this country, and certainly not in many of the marginal areas on the Continent, with the sort of world prices at which we are looking. If one plans therefore to remove production support, one must recognise that, however imaginative some of the top-up schemes—in respect of environmental benefit, access and so forth—one will still leave the agriculture sector in Europe in grave danger, when world prices go beyond a certain level, of total collapse.

In the first years of an agricultural recession, what tends to happen is that farmers take over the land and production is not lost. One could say that that is good market economy; it is desirable; it is the way in which other industries work and it will work its way through. However, there will come a moment when—even if we do not remember it ourselves we have certainly heard about it in the 1920s and 1930s, and before that, in the 1880s and 1890s—the agricultural economy will totally collapse. That is behind the fears expressed by the Agriculture Council Ministers and by the Berlin Summit.

We must at least recognise that as the basis of those fears. The answer to the problem is the system of deficiency payments which the Americans haw in part adopted and which we adopted from 1947 onwards. My noble friend Lord Jopling was absolutely right to point out the enormous scale of support that the United States Government give to their farmers. I draw particular attention to one or two aspects of that system. First, under the US Government's 1996 farm Act formula, when prices fall 85 per cent below the previous five-year average of farm prices for a range of crops, a deficiency payment is made. In other words, 85 per cent of the five-year average income is effectively guaranteed. That is a system of deficiency payments similar to the one that we had for 20 years or so after the war.

The second aspect, which is a very small component of that enormous figure of 69 billion dollars which my noble friend Lord Jopling mentioned for the farms appropriation programme, is a crop revenue assurance scheme. That is supported or subsidised by federal funds and costs between 2 billion dollars and 3 billion dollars.

Again, it is a sensible concept which provides underpinning. Insurance is underwritten by state funds in order to ensure that revenue on the holding does not fall through collapse of world prices which is beyond the farmer's control or natural disaster or for any other reason. If it falls below a certain level, again, the insurance kicks in.

Those all seem to me to be sensible measures which are clearly likely to be much more compatible with the World Trade Organisation than the production support which we continue to give if only because we are being realistic and giving thought to precisely the proposals which are operating in the United States, Canada and elsewhere.

Year after year, this House and Sub-Committee D makes the pronunciation that we must live in the real world and face up to world prices. We must recognise also that it would be irresponsible not to ensure that there is an ultimate long-term solution as to how to cope with the collapse in world prices. The United Kingdom often seems to speak in total isolation. But if those measures were put in place so that there is a long-stop, perhaps we should be listened to more often.

We have a proud experience of deficiency payments because we operated just such a system. Surely it is time for that system to be applied much more widely in Europe.

4.21 p.m.

Lord Williamson of Horton

My Lords, first, I join other noble Lords in congratulating the Select Committee on this report and, in particular, the noble Lord, Lord Reay, chairman of Sub-Committee D which deals with agriculture, fisheries and food—the sub-committee known colloquially as the "poisoned chalice", I understand.

It is valuable to have a first analysis of the agricultural elements of the Agenda 2000 document and, more importantly, to have an analysis of the position taken by the agriculture Ministers and by the heads of state and government in the European Council because that was the decisive element. The Select Committee describes the report as a "brief initial evaluation". I think it is correct to describe it, as they say in the art world, as a finished sketch rather than an oil painting.

There are many points in the report with which I agree and I agree also with some of the comments made by noble Lords, particularly the noble Lord, Lord Jopling, about other parts of the common agricultural policy which do not impinge strictly on British farming. For example, there is no doubt that the tobacco regime is evidently batty. We should do what we can to change that position.

I agree also that the subject of reform of the common agricultural policy was a patient in a coma for many years, despite the efforts of some, like the noble Lord, Lord Jopling, to awaken it out of that coma. But I do not agree that the subject remains completely in a coma now. That is not my impression of the position in a number of other member states.

The common agricultural policy which, perhaps rather irritatingly, might be rather better described as the British agricultural policy—because that is what it is—is not always black or white but sometimes a little grey and I should like to make a number of comments on the grey zone.

First, I recall that the principal purpose of the Commission's communication, Agenda 2000, was to examine the applications for accession and the main questions they raised as well as proposing a timetable for opening the negotiations and giving the Commission's formal opinions on those negotiations. It proposed a reinforcement of the pre-accession strategy and a detailed financial analysis, having regard to the prospects for enlargement. If I remember rightly, that document was based on about 10,000 pages of submissions from the applicant countries, together with extensive consultations with them. But I repeat that, fundamentally, it is a document about the applicant countries and the negotiations with them. That is its first purpose.

However, the Commission decided to go further and to deal with other challenges, including the changes in structural policies and in the common agricultural policy. It is important to put the agricultural chapter of Agenda 2000 in that context. It is not presented as a total reform. It is proposed as, deepening and extending the 1992 changes through further shifts from price support to direct payments, and developing a coherent rural policy to accompany this process". So it is seen as a further movement. It is not a revolution. Some people here would like to see a revolution in the way we operate in Europe. It is an evolution, but we should not underestimate the importance of the evolution which the Commission proposed.

Secondly, and more specifically, there is a tendency—although I generally exempt the Select Committee—to underestimate the changes made in the level of market support in the European Union and to describe the CAP as it was. I believe that "things ain't wot they used to be", although the changes have not been as great as Britain would like to see. In the recent period, agricultural policy has been marked by price freezes and price cuts, so that the element of market support has become much smaller. Of course, the main beneficiaries are, and will continue to be, the United Kingdom and other European Union consumers as the floor set by intervention buying falls. Farmers have been compensated by direct grants or, in the case of the most recent decision, partially compensated by such payments.

It is true that governments have adopted policy changes which reduce the earlier disadvantages of the CAP—of course, they do not eliminate them; they reduce them—for consumers by freezing or reducing support prices for some commodities and substituting a less variable but potentially higher cost to the budget because those direct payments are fixed and, therefore, in some circumstances, could be more costly. It is important to talk not only of the budget costs but also to recognise the benefits of what has been achieved so far—little it is, but it is there—for consumers and, I believe, in due course, for agricultural trade.

As support prices are frozen or fall and intervention mechanisms for some products are weakened, we can see the effect on the market. The most obvious effect is the virtual disappearance of the famous food mountains, perhaps described more accurately today as "The Fens". Public intervention stocks of wheat—and this is just after the harvest—amount to about four weeks' supply; for beef, less than a week's supply, a few days' supply; and for butter, about a week's supply. That is what we have in stock in the public intervention stores in the Community.

The Select Committee's report is clearly presented. I agree with the committee that, in the event, the Berlin European Council decisions in March represented, "not tightening but further loosening" of the reform proposals of the Commission and of the position taken by the agriculture Ministers.

Nevertheless, I want to say a few words on the two chapters which the Select Committee has put forward on this point, arid to deal with just one product. I am the first to accept that there are evident criticisms of a large number of the market regimes—for example, milk where it is completely static at the moment, tobacco and others. But I want to speak about cereals. There is a slight tendency to put together all the different regimes. The way in which cereals are treated in the agricultural policy is extremely important, not only because, for millions of years, they have been the basic element of human diet and life, which is something which we may recall, but also because they are a raw material for a lot of animal production—I refer to egg and poultry farmers in particular—and are a part of their costs.

Taken with the earlier support price cuts for cereals since 1992, the decision at Berlin represents a cut of about 45 per cent in the support price of wheat. That is a significant change. The proposal of the Commission in Agenda 2000 was a cut of 20 per cent in one move in the year 2000 and elimination of the compulsory set-aside. The purpose of that proposal was to reduce the price broadly to world levels in pursuit of a strategy which, could simultaneously avoid the routine use of export subsidies, reinforce the competitiveness of cereals on the single market, overcome the Uruguay Round constraints for oilseeds and, last but not least, bring a good deal of simplification". Anyone who deals with farming will certainly welcome that. We would be close to switching the common agricultural policy for cereals from a market-supported to a market-based system.

As has been pointed out, the European Council did not go as far, and certainly not as fast, as was proposed. However, in my view the Select Committee goes too far or, more accurately, does not go far enough in stating, in paragraph 3 of page 9 of the report, that the price cuts agreed fall far short of reducing arable prices—I repeat, "arable"—to world levels.

In the excellent evidence of the noble Lord, Lord Donoughue, and Miss Kate Timms, I note that Miss Timms expressed the situation very well. She said that when the new member states come to join the Union, they can expect to be joining a policy which has moved quite substantially towards world market price levels". It is obvious that no wise man would bet on world prices. However, I would be prepared to stake a modest euro or two on the suggestion that when the Berlin decisions are fully in effect, world and European Union support prices for cereals, taking one year with another, will be very close indeed. A number of noble Lords have said that they will not be alive then. I am hoping to be alive so that they can cash in their bet if I am wrong on that point!

Perhaps I may say a final word on the degressivity of payments made to farmers in compensation for the price cuts. I agree with the Government and the Select Committee that an element of degressivity would be an important signal of the continuing move not only to a more open market system, but also to a cheaper one. It is a perfectly legitimate objective to have a cheaper one if we can. However, we should understand the consequences of our actions. Obviously, British farmers are under a great deal of pressure today. That is not by chance, but is caused by factors such as the strong pound, the consequences of the BSE crisis and the downward pressure on prices exerted in the common agricultural policy.

Like a number of other noble Lords, I believe that if we continue on this track and achieve an element of degressivity, as I hope we shall, on the direct payments to farmers, we shall gradually, over a period of time, have to think of a safety net for British farmers whose interests I have spent a long time defending and I shall continue so to do.

4.25 p.m.

Earl Peel

My Lords, I, too, thank my noble friend and other members of his sub-committee for producing this report. I congratulate him on three fronts: first, because it is short; secondly, it is readable, and, thirdly, I agree with it. That is a good start.

As the report states, and as I believe all noble Lords who have spoken accept, a fundamental reform of the CAP is essential. No one can underestimate the difficult task facing the Government in trying to reach a consensus when so many different attitudes prevail and so many different agricultural and environmental situations exist. Whether that problem is surmountable remains to be seen. However, share the same scepticism as my noble friend Lord Willoughby de Broke. It will be some time before we see the sort of changes which most of us would want to see.

I am absolutely convinced that the Minister, Nick Brown, is personally committed to substantial reform. I wish him well in his continued negotiations, but I have doubts as to how successful he is likely to be.

It seems to me that the primary objective of any CAP reform should be to try to respond to the changes taking place in the rural revolution we are undergoing in the British countryside. I do not believe that is an over-exaggeration. It will undoubtedly come to other European countryside areas, if it has not started already. My noble friend the Duke of Montrose referred to that point. That means that we must not just address the problems; we must also embrace the opportunities, of which there will be many.

To me, the two most significant criticisms in the report appear in paragraphs 15 and 17. Taking them in reverse order, paragraph 17 states: One of the aims of the Agenda 2000 reforms was to make rural development 'the second pillar of the CAP". However, the report acknowledges the limited success there has been in this direction. That needs to be addressed urgently.

Paragraph 15 states: Historically the CAP has been much more successful in boosting production than in protecting and enhancing the … environment. That is the truest thing that could possibly be said.

The opportunities for environmental enhancement under Agenda 2000, provided for under the horizontal measures, both of a compulsory and discretionary nature, are real. There are opportunities, although I suspect they are limited. However, as I understand it—I am the first to admit that, on reading the documents, the position is quite complicated—member states have the opportunity of transferring up to 20 per cent of the funds allocated to them through the CAP into measures other than agricultural production support, including agri-environment and rural development. My noble friend Lord Reay touched on that point in opening.

I concur with his remarks and should like to ask questions of the Government, of which I gave notice to the Minister. First, what proportion of UK allocation do the Government intend to transfer into alternative schemes, in other words rural development and agri-environment? Secondly, do the Government intend to provide any matching funding? Thirdly—an important question—can the Minister assure the House that any reduction in funds from the UK CAP allocation will be used exclusively for rural development or agri-environment schemes and not, if I may put it this way, siphoned away?

I raised that question during the debate on the gracious Speech on Monday. Not surprisingly, I did not receive a response, in view of the fact that I was being answered by a Minister responsible for education.

I hope that your Lordships will allow me the luxury of reverting to what I might describe as parochial matters. I should like to make a few comments regarding the Countryside Stewardship Scheme. By and large, this scheme has been most successful. I declare an interest in that I have benefited from such a scheme and am doing so at present on the land I own in North Yorkshire. However, despite the tremendous response from the farming community to the scheme, a large number of farmers have become disappointed and somewhat disillusioned because, unfortunately, Government finances failed to meet demand.

I sincerely hope that the problem can be addressed in the future, for two reasons. First, the countryside desperately needs such schemes. Secondly, when farmers are invited to do more for the environment and respond positively, it is extremely disconcerting for them if they are then rejected. That puts out all the wrong messages.

I should add that the scheme is often costly to prepare and many farmers are substantially out of pocket, particularly if they fail to qualify. In order to attempt to alleviate that situation, perhaps the Minister and her department will consider ways in which applicants can produce a lower-grade assessment with less commitment and expense, thus allowing MAFF officers to suggest whether or not their schemes are worthy of progression. That would put a lot more confidence in the scheme and perhaps encourage farmers to come forward. However, if the money is not likely to be available, then I suspect the Government will not make it easy for people to apply.

One other shortfall in the Countryside Stewardship Scheme is its perceived inability to support those farmers who have looked after the land in an environmentally positive fashion. As the scheme stands at the moment they simply do not qualify. That may be because the Minister feels that they have nothing more to offer. But that is an inequitable state of affairs given that they incurred the cost of doing the work to get the land in good heart. I hope that issue will be looked at and possibly addressed in the future.

I welcome in principle the move away from headage payments to area payments within the less favoured areas. That is a long-overdue move. It is a complicated scheme and will require close examination. But can the Minister say whether the scheme is designed to reward those who have done well in the past or, once again, will it be only those who have severely over-grazed the uplands areas who will benefit? I hope that that situation too can be addressed.

In conclusion, my basic concern is that there is not enough urgency in dealing with the future reforms of the CAP. Since its inception there has been a huge decline in biodiversity on our farms though, perversely, the fact that set-aside was retained through failure of reform, is now something I welcome because of the environmental options now available on such land; for example, the wild bird cover option.

We must be aware that 195 of the 514 bird species that breed in Europe are now the cause of conservation concern. I am not talking of rare and exotic species; I am talking of what were once regarded as everyday common birds like skylarks and thrushes, and even sparrows and starlings. Of course, the same applies to flowers and insects. So I stress the need for us all to deal with those problems before they get any worse. The longer we leave them, the more expensive they will be to remedy. We do not as yet have the silent spring foreseen by Rachel Carson 40 years ago, but the springs certainly are not what they used to be. I do not blame the farmers; I blame the system, and that system must change.

Reform of the CAP is as important to the environment as reform of the Corn Laws was to trade. But I am under no illusion. I know that this "Peel" is not likely to have the same effect as that "Peel". However, the Government can do something and I hope they will.

4.42 p.m.

Lord Bruce of Donington

My Lords, I ask the indulgence of the House to use what we normally call the "interval"—not to make a speech on the report itself, although I should like to do so because it is extremely important, but to ask two questions. It must be understood that in asking the questions I make no assertions as to the authenticity of the matters that came to my attention.

Through sources that I normally find reliable among the many institutions that participate in the European Union, it came to my notice that negotiations are taking place between Her Majesty's Government on the one hand and the Commission on the other concerning payments that are made from time to time out of the guarantee and other funds to individual farmers and landowners in respect of the areas that they occupy. A large number of payments depend on the measurement of land. My information, which I do not wish to authenticate and I put the question in the most neutral sense of the term—your Lordships are aware that I like to be sure of the facts before I make an observation—is that it is proposed that the method of land measurement in the United Kingdom should no longer be based on Ordnance Survey maps.

Hitherto, Ordnance Survey maps attracted support wherever people made use of them. They are regarded as being an extremely accurate record of the land and the areas occupied. Can the Government say whether the method of using Ordnance Survey maps for determination of land measurement is presently under negotiation? I understand that it may be discarded and substituted by a more detailed form of survey involving visitations and detailed questioning of landowners and land occupiers, which the Commission feels will lead to a more accurate appraisal of land. That will enable the element of remuneration based on the Ordnance Survey to be changed.

I am given to understand that, in future, allowance should be made for hedgerows and ditches in every bit of farmland affected; in other words, unproductive land. The Commission's attitude is that 5 per cent of its expenditure—and therefore ours—should be made on land payments. Noble Lords will recognise that such a detailed examination conducted by or on behalf of the Commission involving personal interviews, detailed measurement and everything else, would be extremely costly.

The second proposal is that in future it would be unnecessary to establish payments clue to the United Kingdom, either via our Government under arrangements or direct from the Commission, but that they should be related to that survey. It is said that they should be dealt with in greater detail by regional development boards in the United Kingdom with direct contact between the regional organisations and Brussels, and the regional boards and the farmers.

Those are the two allegations made to me. If they are true, or contain a substantial element of truth, I trust that noble Lords will realise that it will be the most detailed and costly survey since the original compilation of the Domesday Book.

4.48 p.m.

Baroness Miller of Chilthorne Domer

My Lords, it is noticeable that our debate this afternoon has been marked by much more rigour than some of the debates in your Lordships' Chamber on the countryside and rural issues. I especially welcomed the contributions made by noble Lords whose historical perspective is considerably longer than mine, though I perhaps share the trepidation felt by the noble Duke, the Duke of Montrose, of speaking after them.

I was pleased to be a member of the committee and feel satisfied that the report addressed the issues in a comprehensive way. Certainly we on these Benches felt disappointed with the outcome of the CAP reform. Noble Lords this afternoon have expressed a number of reasons why reform did not happen in the way that we hoped it would. I should like to ask the Minister what this means for the next round of talks, and when will they take place?

However, before we can address those issues, we need to get our own house in order. There seems to me to be a continuing difficulty for people in defining exactly what we view our agricultural industry as fulfilling. Is it fulfilling a food production role? Is it fulfilling a countryside stewardship role? Alternatively, is it, as most noble Lords believe, a combination of the two? We have not finished—and, indeed, government departments have not, in some cases, begun the process—defining what role agriculture is fulfilling in which region nor deciding how the policies and funding will meet those differing roles.

The way that we approach the case of the second pillar—the rural development pillar to which the noble Earl, Lord Peel, referred and which is to be found in paragraphs 15 and 17 of the report—will be particularly significant as regards how much of a success we can begin to make of our own thinking regarding the direction in which reform should go. We must prove the case by starting to support rural development with adequately matched funding. We must take it out of the shadow of agriculture so that what is truly agricultural production can remain competitive on the world stage, uninhibited by the weight of other requirements, such as environmental considerations. That is not to say that it should be divorced from such considerations, but we need to define what we are talking about and in which area. My incoherence may, perhaps, reflect that which we find nationally.

There must be realism. If enlargement is to take place, and if we are to approach the world trade talks in a way that makes quite clear to people the direction in which we are going, we must define our objectives. Where our objectives are to preserve the social and environmental fabric of rural areas and produce high quality, non-intensive food, that will require funding of a different nature. We need to be clear about what elements we expect to remain competitive in on a world stage. This varies from region to region. Even within our own country, it is beginning to be accepted, even by MAFF, that regions with arable production and those with livestock production are unlikely to be very competitive on a world stage. The Agriculture Minister has made a number of pronouncements about how certain sections of the agricultural community must find their own niches. We need to ascertain whether there are any home-only markets and consider what role they serve.

As I said, we must start to get our own house in order and make such definitions clear. In that spirit, we must approach "degressivity" so that it achieves what we want. We have heard a number of times in this Chamber that we wish to support small family farms because we feel that they will preserve the social fabric of our rural areas and contribute to rural regeneration. However, some noble Lords referred to the fact that there is great anxiety that, as modulation begins to become accepted, the money saved will not be re-directed into the rural environment but will be taken back by the Treasury for other objectives. Perhaps the Minister could comment on that view?

I believe that we need to set bench-marks of our own to measure reform proposals. I should like to refer for a moment to the reform of the less favoured areas scheme and the hill farming allowance scheme to illustrate what I mean. The objectives were, first, to help preserve the farmed upland environment through sustainable management; and, secondly, to contribute to the social fabric in upland rural communities through support for continued agricultural use. It is good that it is a staged transition. But, in some ways, it would seem to disadvantage small farms—the very ones that I should have thought we would want to keep on upland areas. Indeed, it seems to me to disadvantage them in a number of ways and I believe that this is a matter that MAFF should re-examine.

The new system of payments results in a loss of income over the projected three years of the schemes for all types of farm, except those most extensively stocked. Smaller family-run farms are often stocked at a slightly higher rate so they will lose the most. The current hill livestock compensation allowance only accounts for about one-fifth of all subsidy payments to farmers in hill areas. So it could be said not to be very significant if it reduces a little. But on the smallest, most marginal farms, any reduction may be critical. It is, perhaps, better to reduce less so that those small farms are not suffering any drop in what is already an extremely small income.

As we go through particular reforms, both we and MAFF need to be clear about the nature of the objectives; for example, are they to keep people in farming and in our rural areas? Alternatively, are they designed to make farming more efficient? As regards the time-scale, it is very clear from the report that we should press for reforms well before the year 2006. Does the Minister have any idea of when the Government perceive the earliest opportunity will be in pressing for reforms? Further, how will the Government start to make a good case? In particular, we need to make it clear where rural development begins to offer good value and then go back to our more cynical partners, having proved the case in our own rural areas—or begun to do so—of just how effective the second pillar can be. It was interesting to note today that, for the first time ever, newspaper reports stated that people in the UK are spending more on leisure than on food. That may tell us something about the future of our rural areas.

In conclusion, I believe that we very much need to get our own priorities clear before we re-approach our European Union partners. We should also commit ourselves to return early to the negotiating table with some definite answers and successes of our own, so that we can then press for real reform on the grounds of successful experiments.

4.57 p.m.

Baroness Byford

My Lords, I, too, should like to add my sincere thanks to the noble Lord, Lord Reay, who chaired this excellent committee. I should also like to thank members of the committee for their report. It reflects the high quality of Members of this House who serve on such committees and the fact that many of them are actually practising farming and agriculture. That background brings an added value to our debates for which we are doubly grateful. I should also like to pay great tribute, as I am sure the Minister will, to the four members of the committee who are no longer sitting in this House. It is due to the very depth of their knowledge that we now have such a good report before us.

In thanking the noble Lord, Lord Reay, I, too, on reading the report realised the great disappointment felt by members of the committee over the outcome of the reform. They were also worried that it might send the wrong message to farmers. Indeed, the negotiations, together with the whole question of enlargement, the untold costs and the two-tier situation, about which others have spoken, are very real issues.

I should like to speak directly to the report and then, perhaps, digress from it because I believe that it has wider implications. I started by asking myself: when is a subsidy not a subsidy? The comments made by my noble friends around the House today reflect the fact that there is a problem that we have to define. What is classed as a "subsidy" in Europe is certainly not in the United States; and, in Canada, the term is used in a different way. There are some very real issues here that we need to grasp. We need to accept that these issues must be tackled before we can overcome the whole problem.

If the EU reduces the price at which it will put up surplus production—intervene in markets—it is simply reducing the sums on which farmers rely in calculating how much to grow, when to slaughter, whether to purchase quota, and so on. If the EU then introduces payments to compensate individual farmers for the lowering of intervention prices, it can surely be accused of paying a subsidy.

Paragraph 14 of the report now before the House warns that in the WTO talks, 'compensation' payments may come under pressure, as they are linked to past and continued production". Indeed, I have heard that the Cairns Group is likely to pursue this line. Announcements in the press this week have confirmed that.

The WTO negotiations are likely to have several effects. Generally speaking, EU prices are higher than world prices. If the talks increase global competition, the EU will be less and less able to hold its own and intervention stocks—which, we are glad to hear, have decreased over the years—will again begin to rise. This will result in the reappearance of those famous European "mountains and lakes" which, while not noted on any official atlas, have a profound effect on agriculture.

Talks about the WTO talks started earlier this week. Earlier this year, it was generally agreed that Europe would have to reform the CAP beforehand. Indeed, it has tried to do so. Broad targets included the need for, first, agreement on price cuts large enough to trigger growth in the internal market and to ensure competitiveness in the global market; and, secondly, the reorganisation of compensation payments to producers. Early in March, a majority of EU agriculture Ministers agreed watered down CAP reforms. These were then further diluted later in the month—this has been mentioned by noble Lords—at the heads of state meeting. There is considerable feeling and comment that these latest dilutions will prevent the EU gaining anything from the coming WTO talks.

As other noble Lords have said, British farming is in crisis. Never a glamorous part of our national life, it has nevertheless fed our people and maintained the countryside as a national asset. It is suffering currently from the beef ban, but also from intensive and intensifying competition from overseas. It is subject to regulation from seed to slaughter and must now watch from the sidelines as other heads of state, presidents and prime ministers make demands which will further reduce its viability.

In the WTO talks, the US and the Cairns Group want to eliminate export subsidies but find references to food safety, quality and animal welfare unacceptable. The talks involve some 135 countries but will take place largely between blocs. My next point has not yet been mentioned, and I hope that I am in order in so doing. In this country we have high standards of animal welfare. Those noble Lords who put up with my comments on farming issues from this Dispatch Box will be well aware that I have mentioned this matter previously. Those high standards put our farmers at a disadvantage to start with. We expect such high standards of them and then wonder why they cannot compete in the world market.

I have already referred to intensifying competition. I give a practical example of this. Poultry meat is not as popular in the rest of the EU as it is in the UK. Our poultry farmers suffer as a result of imports of chicken from Thailand. This follows agreements, now three years old, to open trade in chicken into the EU. In those three years, the Commission has failed to carry out any inspection of the systems of production in Thailand. On "Farming Today" on Tuesday of this week, Peter Bradnock, who is the chairman of the British Poultry Meat Federation, said that the Commission has not even got round to making a preliminary visit. Yet sources who have lived in the Far East make it clear that standards of hygiene and animal welfare there fall far short of our own. I am not trying to make a political point here, but I point out the great difficulty that we, the EU and the WTO, face as regards agreeing on a common base when we have such differing expectations as regards food and animal welfare.

The report which we are debating today is less than complimentary about the outcome of Agenda 2000. It raises many issues. I mention a couple of those issues which are not centred on our own agriculture. If enlargement of the European Community were to become a reality, agricultural prices would have to fall. If they did not, extending our support price regimes would be most expensive. It would also raise prices in the applicant countries which could lead to an increase in production there. By the same token, it would also lead to a fall in consumption because the people who live there would not be able to afford their own food.

The report also points out that the failure at Berlin has made more acute the need to lessen production. Many other noble Lords have mentioned this. The argument for banning artificial growth hormones in meat is weakened in a situation where the US believes that the EU is simply trying to get round its production problems and become protectionist.

This is a good report for which we should thank the noble Lord, Lord Reay, and his committee. Their deliberations were acutely constrained by time. It is a pity that recently I seem to have to comment on almost a daily basis on the lack of time devoted by Her Majesty's Government to agricultural matters. However, that is not the case on this occasion.

The report paints a picture of a failure within the EU to grasp the importance of the reform of the CAP both to the EU and to the rest of the world. It is likely that the WTO talks will become concentrated on issues such as prices and subsidies when many people in the EU and this country would also like the talks to include issues such as food safety, hygiene, food quality and animal welfare, which I have mentioned. Issues concerning the environment, global warming, genetically modified organisms and growth hormones are also likely to be subordinate to other pressures during the talks. However, they are also important issues.

I mention a couple of other issues to which my noble friends have referred. My noble friend Lord Jopling touched a raw nerve when he referred to an increase in higher prices and to costs which are not borne by all countries. What will the Government do as regards that situation? As regards the rebalancing of some schemes, on talking with colleagues in the Cairns Group on animal welfare and environmental issues it appeared to me that such issues were not of equal concern to them. Under those circumstances, how can the Government get round the issues which affect us directly but do not affect other countries which will take part in the WTO talks? Following a question raised earlier, can the Minister define more clearly the Government's objectives as regards the money paid to farmers to produce food in the first instance but also as regards other schemes which have been mentioned in a social context? I highlight the matters of young farmers entering the industry, early retirement schemes, and support for processing and marketing, which I understand is an option that the Government have at present.

I have not mentioned other points that my noble friends have raised as they have done so more than competently. However, I refer to the intervention of the noble Lord, Lord Bruce. I had not intended to raise this matter today but I understand that what he mentioned may be occurring. Perhaps I may add my weight to the question. I quite understand if the Minister is unable to answer today.

The first issue is very worrying because, if the Commission put it into action, it will be extremely costly. I do not know that it is necessary. If it is to also include unproductive land which has not formerly been taken separately, that is a second issue. When I heard about the third issue—that there is a possibility that the newly set-up RDAs will be going directly to Brussels rather than through our national government—I found it extremely worrying.

I am sorry if I have strayed from a direct response to the report. The report is self-sufficient in its recommendations and suggestions. However, as far as concerns the forthcoming WTO talks, we have to accept that other countries do not have the same starting point as this country and, therefore, that the problem is a much wider one than the report was able to cover.

Before I sit down, perhaps I may again thank my noble friends on all sides of the House—this is an all party report—for an excellent report. I look forward to the Minister's response.

5.11 p.m.

The Minister of State, Ministry of Agriculture, Fisheries and Food (Baroness Hayman)

My Lords, I am happy to begin where the noble Baroness ended by congratulating all the members of the committee, some of whom are no longer Members of the House, for the report. It is another report of great clarity and lucidity. It was introduced in the fashion one has come to expect from the committee chairman. We are all grateful for that in an area where clarity, lucidity and certainty have not always been the hallmarks of policy over the years.

It has been a very interesting debate. I share with the noble Baroness, Lady Miller, some trepidation about joining in with those who have spent many years wrestling with the complexities and difficulties of the common agricultural policy and who know some of its vagaries far better than I. I listened to some of the language used in the course of the debate. To describe the mood as "downbeat" would be putting it as optimistically as I can. We heard talk of "coma" and "depression"; some of the language was downright morbid in terms of the way in which people viewed the possibilities for reform.

It is opportune now to reflect on the outcome of the Agenda 2000 negotiations—as did the report—and the final agreement reached on reforming the common agricultural policy. Noble Lords will have seen in the Government's response to the committee's report on 5th July that our own analysis is very much in line with the committee's findings. I welcome the opportunity to be able to report on the progress that we have made in implementing the Agenda 2000 agreement and to try to answer some of the questions raised in the debate. I am afraid that not all the answers will be fully-fledged on some of the specific issues because of the stage we have reached in the consultation process. However, there is some benefit in that. Views were expressed on certain issues, such as modulation, the Rural Development Regulation and cross compliance, which it will be very helpful to incorporate into our thinking as we take these matters forward.

Perhaps I may turn basically to the issues surrounding the agreement. The House will be aware that the Government's long-term policy is to secure a more competitive and sustainable agricultural industry with a stronger market orientation. As the noble Lord, Lord Reay said when introducing the debate, the broad objectives are not a matter of dispute around the Chamber or elsewhere. We intend to pursue that policy within Europe. Britain is within Europe, and it is in Europe to stay. I was very interested in the interchange between the noble Lord, Lord Willoughby de Broke and the noble Earl, Lord Selborne, about the viability of trying to repatriate agricultural policy. I should say to the noble Lord, Lord Willoughby de Broke, that I am always willing to think the unthinkable; I am not sure how much time I am willing to spend working on the unworkable.

Obviously, these are matters of judgment. But the philosophy of trying to secure that more competitive and sustainable agricultural industry with a stronger market orientation lay behind our pressing for a radical reform of the common agricultural policy throughout the Agenda 2000 negotiations.

I have listened to a number of interpretations of that agreement. As I say, most of them were downbeat. I think that perhaps the noble Lord, Lord Williamson of Horton, was the least downbeat in his assessment of where we have got to. We can all agree that the outcome did not go as far as we would have wished but, against that, we have to recognise that the agreement represents a step in moving the common agricultural policy in the right direction. It is perhaps of the evolutionary nature to which the noble Lord. Lord Williamson, referred. It represents a significant shift from price support to direct payments being agreed, giving the possibility of reducing the economic distortions of the CAP. The changes within it will help agriculture to meet the challenges of further liberalisation of trade, including our ambitions for European Union enlargement and the upcoming World Trade Organisation round. An integrated European Union rural development policy was created, providing the basis for a welcome shift of emphasis from production support towards environmental and rural economy measures in the future.

Perhaps I may now deal with some of those issues. While we recognise the disappointment expressed by the Committee and by speakers today, the Government are keen to build on what has been achieved and to pave the way for the reform process started in Berlin to be completed. I was interested in the points on "degressivity" which were made by the noble Lord, Lord Williamson of Horton, and other speakers. As to the, point made by the noble Baroness, Lady Miller, we will certainly pursue the opportunities created by anticipated market pressures, the reviews contained within the Agenda 2000 agreement, such as the review of the quota system, and the existing commitment to reform the sugar regime by 2001. Of course, as many noble Lords have said—the noble Lords, Lord Tomlinson, Lord Reay, and others—enlargement of the European Union and the forthcoming World Trade Organisation round will increase these pressures.

The Government are fully committed to enlargement of the Community, and that commitment has not waned. While we agree with the Committee that we should continue to press the case for "degressivity" it would be misleading to say that further reform of the CAP is a pre-requisite to enlargement. While we agree with my noble friend Lord Tomlinson and the noble Lord, Lord Willoughby de Broke, that such reform would facilitate enlargement, the Agenda 2000 agreement provided sufficient funds to finance the common agricultural policy in new member states on the basis that they would not receive direct payments. Instead it was agreed that funds would be more usefully directed towards structural development. Should enlargement proceed on that, basis, there would be a need for transitional arrangements to address possible market imbalances.

The noble Lord, Lord Jopling, and others talked in some detail about the Seattle talks which are about to start, covering a range of trade issues. The scope of the round has not yet been fully decided, but there is already a commitment to negotiate on the further liberalisation of agricultural trade. Some of our trade partners are pressing very hard for Seattle to agree detailed objectives for the outcome of the agricultural negotiations. The Community has made it clear that we are prepared to negotiate seriously on agriculture but the mandate has to have some flexibility. We cannot determine the outcome before the negotiations even get under way. Once they are under way they are likely to concentrate on further commitments to increase access to imports, reduce subsidised exports and reduce domestic support which is linked to production. I should like to assure the noble Lord, Lord Jopling, and others who referred to the American subsidy position that we are pressing for better disciplines in the United States' support for their exports, such as their use of generous export credits.

The Government would certainly agree with the committee's view that negotiations will add to the impetus for more reform of the common agricultural policy. We expect other WTO members to press the European Union to go further in making commitments than the existing Agenda 2000 reforms allow. The Agriculture Council has said that the decisions adopted within the framework of Agenda 2000 constitute the central elements of the Union's position for the WTO negotiations, with the European Union's policy being founded on the full Agenda 2000 package. As I have said, this includes reviewing some of the key regimes over the coming years.

Perhaps I could turn now to taking forward the Agenda 2000 agreements. Through the choices available the Government want to help the industry to embark on a new direction for the future of agriculture in this country. In August, in the third of a series of consultation documents on Agenda 2000, my right honourable friend the Minister of Agriculture, set out his vision for the future of agriculture in this country. He invited the views of everyone with an interest in the countryside, such as farming, environmental and consumer interest, on using the options available under Agenda 2000 to achieve a competitive, flexible and diverse industry.

There are, as has been pointed out today, many areas of discretion in the beef, dairy and arable sectors as well as in implementing the Rural Development Regulation. The Government are now considering the very substantial number of written responses to the consultation as well as the reports of the regional consultations that were held up and down the country, which as a Minister who took part in them I can say were extremely valuable. We hope to make an announcement on implementing those options shortly. My right honourable friend the Minister, Nick Brown, is also in discussion with the Treasury about the long-term future support for agriculture in the United Kingdom in the light of the sustained problems that our farmers have been facing, and to which noble Lords have referred today.

Turning to the opportunities presented through the Rural Development Regulation, both for the future of agriculture and for the protection of the environment, which has been spoken about today, the Government share the committee's view that this regulation, the second pillar of the CAP, will remain in the shadows of mainstream agricultural support while the overall Community funding level is so modest. The United Kingdom's allocation within the overall European Union's ceiling is also very disappointing, and we will be pressing the Commission to review allocations and to do so quickly and thoroughly.

However, I do not believe that we should ignore the importance of the Rural Development Regulation in establishing a solid foundation for the long-term reorientation of agricultural support towards encouraging sustainable and enterprising rural economies and communities and towards protecting the environment. It does recognise the multi-functional contribution that farmers make to rural areas and provides a range of measures to help them to diversify their businesses as they adapt to changing market conditions. It also recognises the need to encourage enterprise throughout the rural economy, in part at least to enable it to adjust to the decline in agriculture's direct contribution. It provides mechanisms, as the noble Duke, the Duke of Montrose, pointed out, which are needed to allow rural economies and communities to adapt to the consequences of agricultural reform.

We equally share the view of the noble Earl, Lord Selborne, that measures to enhance the environment should be free-standing and properly targeted to achieve sufficient environmental benefits. This is how we operate our agri-environmental schemes, which are achieving real gains for bio-diversity and landscape, as I think a number of other speakers have pointed out.

The noble Earl, Lord Peel, asked specifically whether the countryside stewardship scheme could become more adaptable towards those who have looked after the habitat and not be designed to give funds to those who have not. Both the countryside stewardship scheme and environmentally sensitive area schemes offer some payments to farmers for maintaining traditional farming practices that are environmentally beneficial. However, within countryside stewardship—because it applies throughout England and demand for it inevitably exceeds the available budget—we operate a system of "scoring" applications for the degree of environmental benefit they would provide. This means that preference is often given to restoring or recreating habitat or for proper management of particularly valuable sites, rather than for simply maintaining the status quo. The priority is to ensure that we get the best environmental value for a given level of expenditure. I have taken note of the noble Earl's comments regarding the complexity of the application forms for countryside stewardship and I will ask officials to consider them as they continue to develop the implementation arrangements for that scheme.

Earl Peel

My Lords, the noble Baroness referred to maintaining the status quo, but surely she would accept that those farmers who have maintained their habitat and have done better than the rest would hardly be described as the status quo.

Baroness Hayman

My Lords, I accept the noble Earl's point. I should like to turn now to the hill farm allowance scheme and to the point made by the noble Baroness, Lady Miller, on small farms. We are consulting on our proposals and will reflect on the points that she raised. The issue of modulation has been raised, and specific questions were asked about how and at what levels the Government would seek to implement modulation. We have consulted on the basis of a form of modulation which fell more or less proportionately on all farmers and would be justified as a means of redirecting some CAP money to certain measures available under the Rural Development Regulation.

My right honourable friend the Minister of Agriculture hopes to make an announcement on implementing the Agenda 2000 options as soon as possible, so the specific questions raised by the noble Earl about whether we would modulate, at what level and at what level of funding, I am unable to answer today. However, I can assure him that they will be answered in the eventual outcome of rural development. We are currently drawing up a rural development plan for England, with a national framework and eight regional chapters. I know that the noble Lord and the noble Baroness, Lady Miller, have been particularly interested in this area.

Perhaps I might go on to say briefly, because I am conscious of the time, that the noble Lord, Lord Reay, asked about cross-compliance. Of course this is not a new option. We at present apply it already to all livestock subsidies, which can be reduced where significant over-grazing occurs. In the consultation document issued in August we sought views on whether to extend the use of environmental conditions on direct payments and, if so, what conditions should apply and to which schemes. We have also commissioned research into the practical issues associated with the various options. I am afraid that this is another case of "watch this space". Certainly the issues that I think have concerned noble Lords who have spoken today will be addressed in reaching decisions on these areas.

My noble friend Lord Tomlinson raised the issue of a specific appointment in the anti-fraud unit of the Intervention Board. Perhaps I could write to him on the details, but in the meantime I would say to him that the unit is a substantial one. It comprises a staff of 60 in six offices throughout the United Kingdom. I think that reflects the serious approach to CAP fraud and the rigorous application of anti-fraud measures that we want in this country as well as at the European level.

My noble friend Lord Bruce of Donington asked two specific questions. In so doing, he said that he liked to base his contributions on a full knowledge of the facts. I equally like to do so in my responses. If the noble Lord will allow me, I should like to write to him on the specific points and perhaps send a copy to the noble Baroness, Lady Byford, who followed up those areas of inquiry.

I believe that we have had a useful debate. I recognise that those who have been involved in this subject for a long time feel that there is an inevitability about the way in which we are progressing and about the difficulties that abound. However, I hope that the Government's response to the committee's report, and the moves which we are making in consulting on the various areas where there is discretion and room for manoeuvre, make people feel slightly less gloomy than some of them did when contributing to the debate today.

Lord Willoughby de Broke

My Lords, before the noble Baroness sits down, will she be kind enough also to place in the Library a copy of the letter to the noble Lord, Lord Bruce, so that we can all have a look at it? I believe that it will be of general interest.

Baroness Hayman

My Lords, I should be delighted to do so.

5.30 p.m.

Lord Reay

My Lords, I am extremely grateful to all who have taken part in the debate. There have been many exceptionally distinguished speeches, all from noble Lords with great experience, either in agriculture or in European affairs or, in several cases, in both. I agreed with a great deal of what I heard and disagreed with very little, so there is little role left for me in winding up. The speeches will stand on their own and undoubtedly will reward careful study.

I believe that my noble friend Lord Willoughby de Broke made perhaps the most controversial proposal. He wished to repatriate the CAP, or, at least, to explore the possibility of doing so I am sceptical. I doubt whether a repatriated CAP could be compatible with a single market in agricultural produce and probably not with our continued membership of the European Union. However, paragraph 22 of our report welcomes those elements in the Berlin deal which allow member states to adjust their policies to suit their own circumstances. We say that it is in those discretionary areas that it may be possible to get the most out of what we see as a disappointing outcome. Therefore, I believe that it might be interesting to examine in the future how far a policy of expanding the scope for national discretion within the CAP could be extended. No doubt the sub-committee on which my noble friend will continue to serve will decide whether or not it wants to conduct such an inquiry.

I am grateful to the noble Baroness for the tone of her winding-up speech, for giving us answers to some of the questions which were put to her and for trying to raise the mood of the House on the subject which we have been debating. She was not in a position to say what decisions the Government have taken over modulation. Obviously, we shall await with interest forthcoming announcements from the Minister of Agriculture.

My noble friend Lord Jopling referred to the fact that my time is now up as chairman of Sub-Committee D. It has been for me a great honour, a great pleasure and an absorbing interest to have had the opportunity to chair the sub-committee through a series of fascinating inquiries. I wish my successor well.

On Question, Motion agreed to.

Lord McIntosh of Haringey

My Lords, before we move to the Statement on local government finance, I should like to take this opportunity, perhaps somewhat despairingly, to remind the House that the Companion indicates that discussion on a Statement should be confined to brief comments and questions for clarification. Peers who speak at length do so at the expense of other noble Lords.