American Farm Bill and Agricultural Trade

HL Deb 02 July 2002 vol 637 cc190-212

7.14 p.m.

Baroness Farrington of Ribbleton

My Lords, I understand that the noble Baroness, Lady Park of Monmouth, will not be speaking during the Unstarred Question. Because of this, the time limit for each speaker can be slightly extended to six minutes. The noble Lord, Lord Carter, will still have 10 minutes to open and the noble Lord, Lord Whitty, 12 minutes to wind up. May I remind noble Lords that as soon as the clock indicates six minutes they are over their allocated six minutes to speak.

Lord Carter

rose to ask Her Majesty's Government what effect the American Farm Bill will have on proposals for the reform of trade in agricultural products.

The noble Lord said: My Lords, Whips certainly do not change, do they?

I have tabled this Question on the 2002 American Farm Bill because it seems to mark a fundamental change in apparent American attitudes towards farm support and thereby their international trade obligations. But before I turn to the Bill, as a former business manager may I say how impressed I am by a parliamentary system whereby the House discussed a Bill on 2nd May, the Senate on 8th May and the Bill became law on 13th May.

I say that there has been an apparent change because some would argue that this merely continues a policy that started in 1998, when the provisions of the 1996 Farm Bill were overturned within two years of its passing.

We all know that there is a political factor in the timing of this Bill; namely, the approaching midterm elections. This was summed up very well by a Nebraskan farmer, who said, "About the time we think we are insignificant out here, something happens to make us think we're not". That reminded me of a remark that a farmer in the Mid-West made to me some years ago when I asked him about his cropping plans for the year. He said, "It's election year, so it is soya beans wall to wall". The political point was made even more graphically by Congressman Larry Combest, Chairman of the House Agricultural Committee, who said, "This Bill is for rural America. It is not for rural Canada. It is not for rural Europe. It is for rural America".

However, it would be unfair to belabour the USA for taking electoral considerations into account when formulating policy. Such attitudes are not unknown in other countries under all electoral systems. The 1996 Farm Bill was supposed to mark a change away from production support and direct payments to farmers. It was part of the reaction to "big government" and increased federal spending that was associated with Newt Gingrich. In fact, the severe economic plight of American farmers in the late 1990s led to substantial emergency payments totalling some 30 billion dollars in four years. That was spending over and above the 1996 authorisation.

The Agricultural Secretary, Ann Veneman, produced a remarkable justification for the proposed increased spending in the 2002 Farm Bill. She said that statements that farm programme support had ballooned by 70 per cent were not "the whole truth". Consideration of support levels for the farm sector should add in the emergency supplemental support provided in the past four years—an additional 7.5 billion dollars each year. The new Farm Bill provides for roughly 7.4 billion dollars each year in new farm spending. Therefore, the new level of support merely adds to and codifies the amount of extra support already provided. That is moving the subsidy and the goalposts in some style.

There has been much comment on the likely effects of the Farm Bill on farm prices and on world trade in agricultural products. United States exports some 25 per cent of its agricultural products, worth about 53 billion dollars a year. It has been calculated that one-third of American planted acres are effectively for export.

It would be disingenuous to say the least that the system of support in the Farm Bill will not have an effect on prices. Crop support in the Bill takes three forms: fixed decoupled payments by which the farmer gets a set payment each year; loan deficiency payments, which are counter-cyclical since more is paid when prices are low and vice versa; new counter-cyclical payments, which make up the difference when the overall income of the farmer (for instance, the return from the market, plus the fixed, decoupled payment, plus the loan deficiency payment) falls below the target price.

The whole system bears a marked resemblance to the deficiency payment system which we abandoned in the 1970s. There are also complicated support systems for livestock products and for fruit and vegetables. Counter-cyclical payments effectively cancel market signals and they are a direct incentive to over-produce in terms of surplus and low prices. It was said—and it was correct—that one of the weaknesses of the system of deficiency payments which we had was that farmers were thereby detached from the market.

So farm support of this type in an economy where 25 per cent of the produce is exported effectively subsidies exports; it makes the US home market unattractive to potential importers and it ensures cheap raw materials for livestock feeders and food processors, and increase their competitive power.

But before we become over-critical of the American approach, it is only fair to point out the arguments which they produce in rebuttal, particularly as regards EU support policy. Their arguments come under the general heading of the mote in the US eye and the beam in the EU eye. They claim that their agricultural markets are relatively open with a 12 per cent average tariff on food and agricultural products. That compares with 59 per cent in Japan, 30 per cent in the Cairns Group, 30 per cent in Europe—and 62 per cent as a global average.

There are many comparisons of the level of agricultural support in America and Europe and the protagonists tend to choose the measure which suits their argument best. The US and the EU farm-gate value of agricultural production is very similar: 197 billion dollars in the EU in 2000 and 190 billion dollars in the US.

The total support estimate in 2000 was 103.5 billion dollars in the EU and 92.3 billion dollars in the US—again fairly similar figures. The total support estimate as a percentage of GDP was 1.32 per in the EU and 0.92 per cent in the US—about 50 per cent less than in Europe. The greater number of full-time farmers in the EU means that producer support averaged 14,000 dollars per farmer in the EU and 20,000 dollars per farmer in the US.

I apologise for burdening your Lordships with those figures, but they illustrate the difficulty in making comparisons, and perhaps we in the EU should go a little steadily before we are too critical of the US. As my good friend Anthony Rosen pointed out, the higher dependence of EU farmers on support is shown by the fact that producer support has ranged between 32 and 35 per cent of gross farm receipts in the EU compared with a range of 11 to 25 per cent in the US. Even with the extra emergency payments to US farmers, in the four years from 1998 to 2002 the level of support as a percentage of gross farm receipts was only two-thirds of EU levels.

Clearly those figures show that both the US and the EU provide substantial levels of support to their farmers. What has perhaps taken everyone aback is the brutally clear way that the Texan President Bush is prepared to look after the American farming interest when times are bad—indeed, reversing the Bush administration criticism of the Farm Bill only last autumn. The American separation of powers is always described in terms of the judiciary, the legislature and the executive. I wonder if there is not in fact a fourth power—the President himself and the state which is his political base.

As we all know, there is a good deal of concern as to whether the Farm Bill proposals will allow the US to keep within its WTO ceiling of 19.1 billion dollars per annum—the specified support. The US claims that it can and it will. But it is not clear how the US can negotiate for a reduction in the WTO ceiling and at the same time keep its word to its farmers. I should perhaps point out that the 19.1 billion dollar ceiling of WTO specified support compares with 62 billion dollars for the EU, even though the total value of agricultural production is approximately the same in America and in Europe. However, it would be unwise to jump to too many conclusions too quickly. I am told that increases in the wheat price in Chicago in two days last week potentially saved 1 billion dollars in support.

The authorisation to spend the money has to be cleared through the appropriation process each year. As we know, the Americans work on autumn to autumn, which is tied to the rural economy—harvest to ha rvest—for their appropriation process. It is probable that the money for 2002–03 is safe. But the money for 2003–04 and beyond will have to be approved each year. It will be interesting to see what happens when discussions on the budget take place in 2003 it is not an election year—and the US budget deficit could be 6 per cent of GDP (with EU figures of around 3 per cent).

One veteran Washington budget watcher has pointed out that some of the funding that was easy to get could be easy to lose. In a prescient comment, Senator Tom Harkin said that the Farm Bill cannot just be open-ended, adding, I wonder how long it will take for supply control recommendations to surface". We all know what that means.

The Farm Bill 2002 has been criticised by Mr Fischler for the European Union, the Cairns Group, the budget hawks on the Hill, the developing countries involved in the Doha talks and economists and commentators throughout the world. I am pleased to have provided this opportunity for my noble friend Lord Whiny to give the Government's view.

7.25 p.m.

The Duke of Montrose

My Lords, it is a great pleasure for me to be able to congratulate the noble Lord, Lord Carter, on having won the time for this debate, and particularly that he is the one who is leading your Lordships to address this timely and knotty question.

First, I declare my interest as somebody who is in agricultural production, and the trade in agricultural commodities affects my business.

Most of us had come to the perhaps erroneous conclusion that the US was driving the trade liberalisation agenda in the world, and the question which the US Farm Bill raises for us now is: why has the leopard changed its spots?

It is certainly no news to your Lordships that agriculture and the supply of food has been a story of swings and roundabouts, between plenty and hunger, between poverty and wealth. America has followed that pattern as much as any country. But in 1980 a different farm crisis hit them.

There had been a period through the 1970s of strong commodity prices and export opportunities, coupled with high inflation and low interest rates. That encouraged farmers to over-invest, so that between 1970 and 1984 farm business debt nearly quadrupled. The economic conditions reversed in the early 1980s, with contracting export markets and input prices and interest rates which rose. Suddenly farm land values dropped by 27 per cent and it was not just the farmers who were going bankrupt but the rural banks, the savings and loan companies and anybody who had put money into that industry and lent against that security.

That shook the whole US property market and must be a pretty telling memory to anybody who is in government there. There has not been a comparable crash in any recent period in this country, unless the present combination of diseases and unfavourable exchange rates happens to trigger one.

The noble Lord, Lord Carter, drew our attention to how the American farming industry has received increased supplementary payments in each of the past three years. I do not have any figures on where the present level of farm borrowing stands. Even so, the American Bankers Association survey found that the number of farm borrowers filing for bankruptcy doubled in 1998 and 1999 to 2 per cent of borrowers. It seems to me that that provides some background to the American perspective on farm aid before even considering the pressures of an autumn mid-term election.

At the same time, it is a timely reminder of the tangled web of farm support that exists across the world and the problems of disentangling it. No doubt the greatest worry is the subject of our debate today, the reform of trade. That is particularly so when one sees the emphasis being put on assistance to exports being provided at a higher level than existed under the previous omnibus FAIR Farming Bill.

The pure market approach which the Americans often liked to promote was that, if we can produce things cheaper, we should be allowed to sell them in other people's markets. But the World Trade Organisation at its last meeting asked people to undertake to reduce export subsidies and reduce export quantities. I wonder whether the Minister in answering can give us any idea if much was achieved in that regard, before we even get into the question of what the United States will do with its present policy.

As various economists try to gain some understanding of what the likely outcome of these proposals is, there is already concern as to what any changes will mean to the rice farmers of Vietnam and Thailand. Perhaps even more vulnerable are the farmers in Japan, who are already heavily subsidised, probably up to their WTO ceiling, which is way above what anybody else receives. But I have heard that their real worry is that if their market were to be flooded with cheap rice, it would no longer be economic to maintain their traditional rice terraces and they would be faced with enormous erosion problems. So right away one is into a wholly different area than simply WTO negotiations.

It may be that we have to go an awful lot further down the road of environmental support and measures which do not lead to trade distortions before measures for freeing up trade can be truly effective.

7.29 p.m.

Lord Hooson

My Lords, I hesitated to put my name down for the debate. I rarely intervene in debates these days as there are so many able and younger people than myself. But I could not resist the temptation when I saw the Unstarred Question and realised who the questioner was. He has asked a most important question. The Government's reply will arouse great interest, not only in this country and in Europe but generally in the world. I remind your Lordships of the question: what effect the American Farm Bill will have on proposals for the reform of trade in agricultural products.

In many quarters in the United States the American Farm Bill is regarded as yet another manifestation of an increasingly unilateral approach by the United States of America. I think that there is a broader context to the Bill. Incidentally, the term "unilateral approach" was first used to me in reference to the American attitude by American friends of mine, not by British or European friends. They were concerned at the increasing manifestation in their own country that the United States should look at its own interests and no one else's.

The Bill's purpose is to subsidise exports from the United States. It goes a long way to making sure that the export is of such a nature that the American farmers—and no doubt the supporters of President Bush—will benefit greatly from it. If the United States does not pay regard to the effect of the Bill, it has the potential to undermine eventually the solidity of the Atlantic Alliance or the Western Alliance. It tends to undermine the progress that we have made—carefully and sometimes unsuccessfully—over the past half-century and more in the direction of a multilateral and a global approach to many of these problems.

As a hugely dominant military power it is understandable, even if regrettable, that the United States takes an increasingly unilateral approach in military matters, believing that it leads to incisive action. One can understand that approach, although one may have grave doubts about it.

As the events of the last few months, which have been underlined in the past fortnight, have shown, the USA's economic dominance is not so great. It has a vulnerable economy too. The Farm Bill can lead in the States to an accentuation of trade wars. So far as concerns grain, America is in a dominant position, which is rivalled only by countries such as Canada and so on. But we need an approach to this problem that is shared at the very least between Western Europe, the United States and Canada.

One hopes that the Prime Minister, when he meets President Bush, will seek to ensure that there are talks on the matter and on the broader implications of this move. The great danger with the Prime Minister is that he sometimes regards himself as an emissary for the United States. I believe that he should think much more deeply about the matter and about the implications for the global economy as well as for this country.

The noble Lord, Lord Carter, was absolutely right to say that we in the European Union have had our own form of protectionism. Indeed, I was one of the upholders of the common agricultural policy. Years ago it seemed to me that were it not for the common agricultural policy there would have been a great exodus from the countryside into the towns and cities, especially in Italy, France, Germany and so on. It probably made a major contribution in ensuring that the Communist Parties, which were so strong in those countries, did not obtain a dominant position.

The reply today will be an indication of how the Government are looking at the matter. Are they looking at it as merely a matter of American interest and they have nothing to say about it, or do they appreciate that the Bill in the United States has enormous implications for the global economy and for Europe?

7.35 p.m.

Lord Williamson of Horton

My Lords, I thank the noble Lord, Lord Carter, for raising the issue of the new US Farm Bill today. It is a significant change in United States' agricultural policy and hence, because of the possible domino effect on international trade negotiations' on US trade policy generally, I am critical of the Bill which the Washington Post described in a headline on 2nd May as, "This Terrible Farm Bill". However, I recognise some US impatience with the slow pace of change in our own agricultural policy. I shall make a brief comment on that first in order to set in perspective the battle of the giants or, worse still, the stalemate of the giants.

We do not yet know what will be the outcome of the consideration by European Union Ministers of the mid-term review of the agricultural policy which the Commission is putting forward. But what we do know is that although the pace of the reform already implemented or agreed is too slow, the direction of the reform is generally good. First, we have, to a large degree, changed the mechanism of internal market support—where it exists at all—into a safety net system rather than a rigid public intervention system, and thus the infamous butter mountains and other phenomena have long since vanished.

Secondly, we have acted directly on reducing support prices or taking decisions to reduce them in the future. Consumers have been the beneficiaries of these changes; taxpayers less so because direct grants have played a bigger role. We have moved a long way from a managed market towards a normal market system, at least within the European Union itself, although we still have substantial external protection.

Thirdly, European Union export subsidies are becoming less and less important, falling from 25 per cent of the value of farm exports in 1992 to 5 per cent today.

Fourthly, we have made an important start on conservation, environmental and rural development programmes.

I now look at the American Farm Bill. First, it is a change of direction. It reverses the market-driven reforms initiated in the 1996 Farm Bill. It is true that Congress has added extra spending to that Bill in the intervening years. But the new Bill goes a long way from the earlier objective of market-driven and declining support.

Secondly, there is the massive scale of US agricultural support. Total direct spending in the new Bill is 273.9 billion dollars over the six years—2002–07. Of this total, 51.7 billion dollars is new spending above the March 2002 deadline. I recognise that included here is important expenditure on food and nutrition programmes which may not always be considered as agricultural support. But, none the less, direct support to US farmers is large.

The farm gate value, as we know, produced by agriculture in the US and the European Union is about the same, although the European Union has over 7 million farms and the US has about 2 million. What is the best measure of total support in the US and the EU? For myself, I find the Organisation for Economic Co-operation and Development total support estimate for the year 2000 interesting, because it was published before the present US Bill. It shows some difference favourable to the United States, but the cost per head for the citizen was 338 dollars a year in the United States of America and 276 dollars in the European Union—both are too high, of course.

Thirdly, the new US subsidies are closely related to products and are likely to encourage production. Crops are now supported by three types of subsidy: the fixed subsidy each year for each crop, which is higher than existing payments and is not decreasing; loan deficiency payments, which are in effect the difference between a fixed price—the loan rate—and the local market price; and a new subsidy that will top that up where necessary to a target price. That is broadly the system that was eliminated in the 1996 Bill. Now it returns.

Thus, for wheat, there is a fixed subsidy of 19 dollars 11 cents a tonne; a loan rate of 102 dollars 88 cents; and a target price of 141 dollars 83 cents. There are big bucks here. There will also be a new subsidy for dairy farmers dependent on price and a continuation of intervention buying for skimmed milk powder or cheese. For sugar, there is high protection against imports and a public purchasing programme will continue.

Fourthly, there is an increase in direct support for export measures. The market access promotion programme rises progressively from 90 million to 200 million dollars a year.

Fifthly, and finally, I comment on the effect on developing countries. The European Union is the world's biggest market for imports of agricultural goods from developing countries—about 75 per cent higher than developing country exports to the US. However, the US exports far more to developing countries, and will probably export even more given the impact of its export measures.

President Bush described those measures as generous. Looked at from within the USA, they probably were; looked at from here, they present an unhappy picture for British farmers and international trade.

7.42 p.m.

Lord Grenfell

My Lords, I, too, am grateful to my noble friend Lord Carter for initiating this debate. I shall not spend valuable time criticising the political process that led to the enactment of the Farm Bill. I want instead to discuss its impact on poor countries. Suffice it for me to cite with approbation the opening paragraph of an editorial in the Washington Post of 14th May: Yesterday Mr Bush signed a farm bill that represents a low point in his presidency—a wasteful corporate welfare measure that penalizes taxpayers and the world's poorest in order to bribe a few voters". I acknowledge that some Senators and Congressmen—even some Republicans from the Midwest—said that the price tag was too high at a time of returning budget deficits and the war on terrorism, and that it was tailored more to parochial election-year interests than to the farm economy's long-range needs. Well, good for them. But as we all know, the Bill's impact ranges far beyond the interests of the American farm economy.

At Doha, poor countries agreed to negotiate in part because of promises by the Bush Administration that a top priority for the talks would be the phasing out of subsidies and other moves to increase access for poor country agricultural products in rich country markets. But this Farm Bill makes it much tougher to overcome the resistance of farmers in countries such as France to giving up their subsidies. The immediate reaction of Canada's agriculture Minister was to say that his Government was considering increasing aid to Canadian farmers to counter the new American subsidies.

US policymakers counter that, if and when they emerge from the World Trade Organisation round in 2004 with a satisfactory agreement, American farmers will be happy to exchange their new subsidies for market-opening concessions by other countries. To that, I can say only, "Oh, really?" It is more likely that this six-year Farm Bill will be renewed in one form or another whatever happens in the Doha round. Once extended, government benefits are hard to withdraw. In 1986 President Reagan tried to trim subsidies and the Republicans lost control of the Senate.

The immediate losers, of course, are the developing countries. Agricultural subsidies in developed countries are now at a worldwide level of about 350 billion dollars per year. The EU has also rightly been in the dock over that issue. As the president of the World Bank recently noted, that is seven times what countries spend on development assistance and is roughly equivalent to the entire gross domestic product of Sub-Saharan Africa. Those trade-distorting subsidies are crippling Africa's chance to export its way out of poverty.

Of course, African countries need to follow through on the New Partnership for Africa's Development agenda. In particular, internal barriers to trade and investment that limit the ability of African farmers to market their goods must be removed. But without a level international playing field, they are simply doomed.

It is not just a matter of reducing and eventually removing those subsidies. The US collects in tariffs about half a billion dollars a year from poor country exporters, roughly 11 per cent of the value of those exports. Escalating tariffs that peak with processed agricultural goods are huge barriers to the exporting of Africa's processed products. The US has the highest tariff peaks of any major market. They are 76 times as high as the average tariff.

In Sub-Saharan Africa, the figure is only five times as high as the average. World Bank research—I am grateful to the bank for supplying me with it—shows that if the US were to eliminate tariff peaks on the exports of the 49 poorest countries, their exports would rise by about 1.1 billion dollars per annum.

The value of the EU's "Everything But Arms" proposal is, of course, diminished by delayed implementation for bananas, rice and sugar, but it is certainly a step in the right direction that goes farther than has any other rich market.

I conclude by returning to the Farm Bill and taking a typically pernicious example of its impact. Cotton production in the CFA franc zone countries of West and Central Africa has increased fourfold in the last two decades, making the region the world's second largest cotton exporter with a 13 per cent share of world exports. Cotton is the main cash crop and the largest source of export receipts and government revenues in several countries of the region. Its cultivation employs more than 2 million rural households and is hence a key factor in poverty reduction.

Removal of US subsidies on that one crop alone would increase revenues from cotton in the region by about 250 million dollars a year. But, of course, the Farm Bill increases subsidies to American cotton producers in the Republican Party's southern base. If world cotton prices were not further depressed, as they must surely be by those subsidies, the number of people living in poverty in Burkina Faso, according to the World Bank and the International Monetary Fund, could be cut in half within six years. Subsidies account for about one-third of the 35,000 dollar average annual income of US cotton farmers. The per capita income in Burkina Faso is less than a dollar a day.

That is a fair measure of the perniciousness of the Bill. The irony is that America's future farmers will suffer as subsidies push up land values and rentals, meaning higher costs for new farmers, while overproduction depresses prices. It is a short-sighted, selfish Bill that sends entirely the wrong messages and does the United States Administration and Congress no credit.

7.48 p.m.

Lord Hannay of Chiswick

My Lords, the noble Lord, Lord Carter, has done the House a service by asking this Question, which is timely. We have moved an awfully long way from the euphoria of last November's Doha meeting, which inaugurated a new world trade liberalisation round—proclaimed as it was as the economic response to the atrocity of the attacks on New York and Washington. Nothing has moved us further away from that euphoria than this US Farm Bill.

First, there were the protectionist measures on steel. Now we have this extension of subsidies on a wide range of agricultural products—an extension, moreover, linked to production levels, not decoupled from them, which would have been much less damaging. The rhetoric of trade liberalisation remains, as the Administration struggles to obtain fast-track negotiating authority, but of its practice and substance little is left. That is a bad prospect for all those who believe that freer trade should be the motor of the world economy.

Of course there is a quick and facile response from the other side of the Atlantic: "Who are you in Europe, with your common agricultural policy, to be pointing a finger at us?". I call that point facile not because there is no truth in it—the CAP is indeed protectionist—but because it in no way excuses a major move by the United States in the wrong direction and, further, because the Americans are pulling the rug from under the feet of those in Europe who want fundamental reform of the CAP.

Of the many tears being shed in Europe about the Farm Bill, we can be sure that plenty will be of the crocodile variety, shed by those who will soon be arguing in Brussels that the EU cannot possibly be expected to make a contribution to the new trade round when the Americans are behaving as they are. That is an additional cross that those who want to see the CAP reformed must now bear.

Does it all matter very much? It matters quite a lot. If this trade round is to succeed—if it is to reach an agreed conclusion at all—it must offer more and deliver more to developing countries than earlier rounds have done. How are we to do that, if we do not give them better access for their agricultural goods to our markets and if we do not cut back on the subsidisation of our agricultural exports, which are undermining their farmers' production? If we add to that the disillusionment of key trading partners such as Australia, Canada, New Zealand, Argentina and Brazil, which depend crucially on highly competitive agricultural exports, we will find that we have a witches' brew that could all too easily poison the Doha negotiations as a whole, and thus deeply and negatively affect the economic prospects of the whole world.

What is to be done? One answer—far and away the preferable one—is for the European Union to do what I would call taking a leaf out of its Kyoto book. By that I mean that we should not be deterred by this setback, but should work up a genuinely liberalising agricultural trade package, based on serious reform of the CAP. That should be put on the table at Geneva as our contribution, albeit a conditional one requiring reciprocity. In that way, the European Union would, for the first time, give a lead in agricultural trade instead of playing its usual role of reluctant and grudging participant, producing concessions only under extreme pressure.

Once such an offer is on the World Trade Organisation negotiating table, we will soon see pressure being put on the United States both by the developing countries and by major developed country agricultural exporters to remedy the damage that has been done by the Farm Bill. I hope that the Minister will say that that is our objective and our intention.

7.52 p.m.

Lord Brittan of Spennithorne

My Lords, the effect of the American Farm Bill on the proposals for reform of trade in agriculture has, simply, been devastatingly damaging. Indeed, it risks being a body blow to the whole Doha development round. I take no pleasure in saying that. I say it with great sadness, because further liberalisation of trade generally—not just in agriculture—is in the interests of the United Kingdom, the European Union and the United States. Properly handled, it is also in the interests of the developing world.

To achieve that liberalisation, the closest cooperation between the European Union and the United States is essential. I was fortunate enough to achieve that with Mickey Kantor to conclude the Uruguay round. My successor, Pascal Lamy, was able to achieve it to launch the Doha development round. Long before I took over the negotiations in the Uruguay round on behalf of the EU at the beginning of 1993, the US and the Cairns Group had orchestrated a loud chorus demanding the elimination of trade-distorting subsidies. In spite of huge resistance in certain quarters of the EU, we were, in the end, able to achieve consensus on taking a major first step in that direction.

In 1996, the EU unfurled the banner of trade liberalisation afresh and called for a comprehensive new trade round. Once again, the US focused almost exclusively on agriculture. We argued for something much broader. Two years later, at Doha, the round was finally launched, but it was a fragile launch, much assisted by the universal desire, after 11th September, to do something positive for the world economy. The developing world reluctantly set aside its doubts, as much as anything because of a belief that the barriers that its main exports—agricultural products—faced would fall significantly at last. This year, we have all been dealt not one body blow but two. First, there was steel, and then there was the Farm Bill. Both have caused deep resentment in the developed and developing worlds alike. It is not the comparative magnitude of support that matters but the direction in which the major trading blocs are going.

For crops alone, the Bill means an increase of 15 billion to 20 billion dollars a year. That is an increase of 70 to 80 per cent. Over 10 years, it will amount to 180 billion dollars. It will aid farmers in a highly production-distorting way. The loan deficiency payments change the price of exports, which will be subsidised on the world market. Changing prices at home will make things more difficult for exporters to the United States and destroy the competitive advantage of developing countries.

The Bill is also likely to break WTO rules. Fixed payments, loan programme payments and countercyclical payments are crop-specific payments and are limited by the WTO commitment. The US is likely to exceed the 19.1 billion dollars per annum to which it is limited for such payments. In addition, the dairy levy on imported milk is likely to score as a tariff and would be permissible only if the United States were to give other countries equivalent concessions. There is scant sign of that.

Under the Bill, the Agriculture Secretary has the power to, make adjustments to the maximum extent practicable to prevent a breach of WTO commitments. That is the fig-leaf behind which he hides. It is not, however, a credible position. How will he forecast an overshoot? Will he seriously get farmers to repay money paid to them in order to bring the US into compliance with the WTO requirements?

The sadness in all this is the irony that the Bill should have been announced just a few weeks before the EU Commission was due to come up with an unexpectedly dramatic, radical and welcome proposal for reform of CAP. There would be a massive elimination of trade-distorting subsidies. That coincidence in time is not just irony, it is a tragedy. It is a double whammy. The Farm Bill will have a devastating effect on the developing world's support for the Doha round. With the steel measures, it completely destroys the US's credibility as a joint leader in trade liberalisation and a partner whom we in the EU badly need.

As the noble Lord, Lord Hannay of Chiswick, rightly said, the Bill also makes it infinitely more difficult for Franz Fischler to get the Commission's reform proposals through. French opposition is already virulent, even before the proposals have been formally announced. Now, such opponents have a wonderful pretext for saying, "No. Why should we go through the pain of reform when the US is going in exactly the opposite direction?". We must, none the less, insist that it be done, for the reasons that the noble Lord gave.

With the Farm Bill, the US is in the process of destroying what it has striven for a generation to achieve, just when success was in sight, because the EU was going in the direction that the US had previously pointed. I hope that, ultimately, it will not be too late for wiser counsels in Washington to prevail.

7.58 p.m.

Lord Haskins

My Lords, I have spent the past several months wandering around Europe and North America—both in Canada and the United States—discussing the issues. I share all the concerns expressed by noble Lords about the alarming implications for the General Agreement on Tariffs and Trade.

I agree particularly with the noble Lord, Lord Hooson, that the issue goes wider than agriculture. It is a wider issue than steel. It concerns a sudden unilateral decision to make a pre-emptive strike, undermining the approach to defence and NATO that we have taken for 60 years. It relates to unilateral decisions about recognising the democratically elected leader of the Palestinian state. It relates to the unilateral refusal to sign the Kyoto treaty and the refusal to co-operate on the International Criminal Court. It is a sort of John Wayne or Wild West approach to policy making, and it will not do.

Such moves put serious pressure on America's relations with its allies and friends, never mind its adversaries. Frighteningly, such unilateralism can lead to a form of isolationism. That would be as much a disaster for the United States as it would be for the rest of the world. We must remember that only 50 per cent of Congressmen hold a passport—so their perspectives are not exactly international when it comes to these issues. But those attending the summit in Canada last week were especially horrified by this development and by the possibility of what it may do to the NAFTA agreement. The Canadian Minister of Agriculture told me that some compensation for farmers has been announced which, it is claimed, is consistent with what Mr Fischler is attempting to do in Europe.

Turning to Mr Fischler, it is tragic that this should happen when, for the first time in 40 years, we appear to be about to make a radical breakthrough in terms of the Commission's proposals on agricultural reform. I believe that Mr Fischler is moving in the right direction and the proposals must get the support of everyone in Europe. There are too many reservations, even in Britain. I recommend that when Mr Fischler's proposals are published next week the Government should give them huge and constant support. We should make sure that we do not get bogged down in the nitty-gritty. It is a vital presumption ahead of the enlargement of Europe. There are agreements in principle, and all the participant members have signed up to 25 of the 30 chapters that are outstanding on enlargement. The only chapter to which none has signed up is the one on agriculture and food. We must have the Fischler agreement in place to enable us to talk to our friends in the enlargement countries by October. Time is against us.

It follows that time is against us on Doha. We have to come to terms with an agreement in Doha next March. I plead strongly with the Government to support the Fischler recommendations when they are published. They are an essential basis for both of those great historic proposals to go forward.

We must be patient with the United States and not resort to tit-for-tat action. We do not have time for it, and it would be improper. We must hope that common sense will prevail in the United States. I have met many people in the United States who are quite ashamed of what is going on at the present time and who are looking for opportunities to change it. Oddly enough, I see the best hope in a bizarre alliance of the NGOs, who are obviously concerned about how world trade is going to develop. They are misled in some ways, but their interests are the interests of the developing world. The NGOs are coming together with the constitutionalists who believe that 1775 did matter. Sometimes I look at the Attorney-General in the United States and wonder whether he has read the Constitution and whether he adheres to it.

Finally, there is big business itself. Someone in a large multinational told me the other day that he trades in 121 countries. It is not in the interests of American big business to allow this isolationism to develop. I am pretty confident that American business will see the foolishness of the Administration's ways and begin to apply pressure on it.

Finally, I hope that the President himself will listen rather more to his father and to the Secretary of State, Colin Powell, and reject the populist and self-destructive jingoism of his Vice-President, his Defence Secretary and the Attorney-General in particular.

8.3 p.m.

Lord Palmer

My Lords, I too thank the noble Lord, Lord Carter, for initiating this important debate and must declare an interest as someone who tries to farm in the Scottish Borders. I am also a residual beneficiary of a banana plantation in the West Indies. After so many distinguished contributions, not surprisingly I have crossed out almost all of what I had intended to say—much, I am sure, to your Lordships' relief.

The US Government's support for this Bill is a significant change in direction, both from their policy position outlined last year and from the previous Farm Bill. It will have serious implications for farming around the world. Among others—as indeed was mentioned by the noble Lord, Lord Carter—the Cairns Group has condemned it, suggesting that the size of the subsidies will have a damaging impact world-wide on agriculture. Sadly, I fear that it will provide comfort for those WTO members which are determined to resist meaningful reform of the agricultural sector.

The Bill incorporates large increases in expenditure, with spending on commodity support up by around 70 per cent. Total funding available for farm spending was set at approximately 170 billion dollars for the next decade. However, it must not be forgotten that the original cost was calculated on the basis of overoptimistic estimates of commodity prices.

It is important to bear in mind that, by comparison, direct payment rates for wheat in the United Kingdom were worth around £35 a tonne last year. Intervention prices are currently around £70 a tonne. As such, the sum of intervention and direct payments is broadly similar to the total level of support available in the United States. However, the European Union intervention system is subject to quality requirements, so the effective level of support available for EU grain is lower than that indicated by the intervention price. In contrast, all US grain qualifies for the target price level of support, regardless of quality.

Notwithstanding the dramatic increases in the level of support brought about by the Farm Bill, the US continues, ironically, to champion free trade. It continues also to point at others, notably the European Union, arguing that complaints about the US Farm Bill are simply an effort to deflect attention from their own policies, or lack of.

The noble Lord, Lord Carter, mentioned this and it is worth repeating. In regard to this Bill, the chairman of the House Agricultural Committee emphasised: ''This is for rural America. This is not for rural Mexico; this is not for rural Canada and this is not for rural Europe". As a direct descendant of an American President, albeit an assassinated one, I find these words somewhat chilling.

I am always criticising my children when they use the expression "unfair", but it really is extraordinary the difference between the US and the EU attitudes towards agriculture. Perhaps I may ask the Minister exactly what representations have been made to the US Government in respect of this Bill.

Here in the United Kingdom, our agriculture industry is in real crisis and all of us involved in it look to the Minister to give us a guiding hand. He will not be surprised that once again, I believe for the 16th time on the Floor of the House, I am asking him to look at the role that biofuels can play in helping to restore farming margins and in helping to meet Her Majesty's Government's commitment to cutting greenhouse gas emissions. It must make sense and I beg of him to seize this opportunity now before it is too late.

8.7 p.m.

Lord Linsey of Talgarth

My Lords, I congratulate the noble Lord, Lord Carter, on introducing the debate. I shall not mince my words. I believe that the American negotiators have played a lot of kidology over the years in relation to this issue. It is my belief that this Bill bucks the bronco of the markets in world trade in farmed commodities. The noble Baroness, Lady Thatcher, once said, "You can't buck the market". But that is precisely what the Bill will do. It is the Republicans who are doing it for short-term gain in the autumn elections, particularly in the Midwest. It bucks the US budget. It bucks the EU CAP and Agenda 2000. It bucks the Cairns Group in New Zealand, Australia, Canada and other countries; and it certainly bucks the third world.

The Bill ignores the crucial principles of supply and demand economics. Higher prices equal more production, which equals a surplus over demand. Through deficiency payments and target prices, without a cap on quantity and without set-aside, it will encourage larger USA farmers to produce more, with support for exports as well. It will result in the overproduction in the US of farm commodities. Secondly, it will lower farm commodity prices on world markets. Thirdly, it will undermine farm incomes in the rest of the developed world and many will have to give up farming as a result. Finally, it will decimate third world farmers and increase poverty. There will be an exodus from the land and all the consequences that that will bring.

The alternative arguments in the United States supporting the Bill are just plain baloney—to use a good American word. The Washington Post said: The most likely scenario is that in two years we will be overwhelmed by surplus agricultural production, low commodity prices and excessive government payments. We will have lost cases before the World Trade Organization, and government outlays will exceed budget limits. We will be forced to cut benefits or rewrite this legislation". That is an American comment on its own Bill.

We have heard the figures and I do not want to go over too many, but the 180 billion US dollars is equal to one third of the whole UK budget for one year. We should recognise the enormity of that. The increases in state payments by 70 per cent will inevitably lead to the breaking of the WTO rules, despite many US contrary claims.

Doha reform proposals will be undermined and the US is speaking with forked tongue on many of these issues. The contributions of the noble Lords, Lord Brittan, Lord Haskins and Lord Hoosan, show that this is a serious matter for the world at present. It undermines confidence in world trade. Of course the conservation budget will go up by 80 per cent. I could quote from the pages that I have with me, but I do not have time to do so. It will be devastating for smaller family farms in the United States.

By contrast, the Freedom to Farm Bill 1996 tried to wean farms with reduced support. As we know, prices collapsed and farmers had to be bailed out to the tune of 30 billion dollars. The basis of EU policy is much more enlightened. The reductions in production support focused on food safety and quality, rural development and environmental services. I believe that Mr Fischler has many problems and he needs maximum support at present. The question is whether this policy will be sustainable in the EU 'when confronted by the US Farm Bill. If world prices for basic commodities collapse and they cannot be sustained, production in the EU will be under threat. There is no doubt about that. The CAP reforms may not be carried through successfully and when that is addressed in relation to the enlargement of the EU, it looks like a doomwatch scenario. The impact on farming in the UK, with higher prices in the US, will cause immense problems for UK farmers whose incomes are already really low.

As the noble Lord, Lord Hoosan, said, we need to take a wider view. When we consider the current unilateral behaviour of the Americans, such as their spurning of the International Court, their threat to withdraw troops from Bosnia, the accountancy frauds, and now the impact of this Farm Bill coining over the horizon, it is vital that the Government represent our feelings to the United States and that wiser counsel prevails.

8.14 p.m.

Baroness Byford

My Lords, I, too, thank the noble Lord, Lord Carter, for giving us the opportunity to debate this important issue tonight. I am sure that he has been well rewarded by the quality and depth of the speeches made by all noble Lords. Before I continue, I remind noble Lords of my own family's farming interests.

This American Farm Bill is the wrong Bill at the wrong time and it sends out the wrong messages. It is deeply unfortunate as it comes at such a crucial time in the negotiating cycle that is taking place in the EU and globally.

I looked at the conservation measures that are contained in the American Farm Bill, which envisages spending 26 billion dollars over the next six years for stewardship and 254 million dollars over the next six years for grasslands. Those are both new provisions. At the same time, funding for the environmental quality incentive programme will rise from 200 million dollars to 1.35 billion dollars. Further rises are promised for the conservation reserve, the wetlands reserve and for farmland protection. I think that some of us share those objectives.

However, by far the greatest expenditure is the rise foreshadowed in the Bill—an extra 37.6 billion dollars over six years for commodity support, to which all noble Lords have referred.

Even so, we should acknowledge that despite these new financial commitments, the United States spends less in support of its farmers than we do in the EU. I mention that only because the Americans will remind us of that when we come to negotiations. Having acknowledged that fact, we are now in the position that Europe is moving away from commodity support at the very time that the US is moving back in that direction. It seems likely that in future WTO discussions the expression "creative accounting" will come to the fore. It is not welcome, and it will acquire a whole new meaning. As other noble Lords have said, stalemate must not be allowed to prevent more liberalisation of trade. Nor must we let the Americans become isolated. We all need each other and we all need to move the reform programme forward.

United States farm prices are low. Farm prices are low world-wide, including in this country. Low farm prices usually reflect low demand, so an oversupply situation arises. United States aid, tied to US supply, will be used to deliver the surplus crops to those countries whose people are hungry. Unfortunately, it has been shown that the effect of dumping low priced goods in a developing country is to price the local producer out of the market. He then stops producing altogether and the aid, which is made with the best intentions, makes the position worse.

No debate about farming would be complete without some reference to the agricultural catastrophe that is happening in Africa, where, according to the World Food Programme, more than 5 million people are starving or are about to starve in Zimbabwe alone and where 13 million people in the whole of southern Africa could need feeding. Drought is often blamed but sadly in Zimbabwe, the difficulties are man-made. It is a country that has hitherto fed itself and its African neighbours. Even if the G8 countries fulfil their Doha commitment to help African agriculture through improved market access and the reduction of export subsidies, the effort will be wasted unless action is taken to rebuild the essential infrastructure of good government and effective farming.

In a world where some countries such as ours are blessed with food in plenty, while in others millions die from starvation, a solution must be found urgently. Is it right that we continue to give surplus food, in what some regard as "philanthropic dumping", if there are opportunities for some of those countries to be helped to produce more food themselves? Surely that is more important than giving them our excess food.

Farming in the UK is at a crossroads, and we have had many debates in the House about where we see the future in farming. For many the outlook is bleak. Profit—a word that we have not used tonight—is something that all want to achieve. These coming months are crucial to us all, including the United Kingdom Government, the European Parliament and the WTO. The inclusion and encouragement of developing countries must be allowed to proceed.

We must not duck the basic challenge to find solutions to these world-wide problems which have been clearly identified in the debate. Much courage, persuasion and encouragement will be needed. I hope that the Government put their full weight behind the negotiations that will continue to take place at the European level and into the WTO talks that are to be held shortly. I also hope that they put the future of our own people and, more importantly, those in developing countries at the top of those talks.

8.20 p.m.

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty)

My Lords, I thank my noble friend Lord Carter for initiating this debate. It marks a change in our relationship. For five years, as Chief Whip, he told me what to do and now he asks me what the Government are to do. He has also managed to achieve a debate with a high degree of consensus in the House. Although that is general on trade issues, it is regrettably rare on agricultural issues. The Government concur with much of what has been said.

The situation is sad. As the noble Duke, the Duke of Montrose, and the noble Lord, Lord Brittan, pointed out, for many years the United States has been the advocate and the driver of liberalisation in trade, including agricultural trade. In the Uruguay round, the United States pressed the hardest for agricultural policies to be liberalised world-wide. Within the European Union, the United Kingdom has been its best supporter and began to bring the European Union along that road. No other sector of world trade is more distorted than agriculture, and therefore in greater need of liberalisation. It is clear, to answer the noble Lord, Lord Hooson, that we do not regard this as an internal US matter. It is of supreme global importance.

The Uruguay round was progress. We have made some advance. In answer to the noble Duke, the Duke of Montrose, the US has stopped its use of direct export subsidies, although it still uses export credits and food aid in the same direction. The EU has reduced export subsidies by a quarter, which is a start, but we need to build on that. In 1995, at the end of the Uruguay round, we committed ourselves to a continuing programme of reductions in agricultural support, which distorted trade. No country fought harder for that than the United States.

Therefore, it was with some dismay that the Government greeted the news of the Farm Bill. Yes, we know that that is probably not the American Administration's starting position, and that much internal American politics has been involved in it. Yes, we accept that the American Administration remains committed to liberalisation through the Doha round. I also accept the various points that have been made that the Americans will face budgetary problems, as my noble friend Lord Carter has said, but there is much opinion in the American media, as the noble Lords, Lord Haskins and Lord Hooson, have said. Both the noble Lords, Lord Livsey and Lord Grenfell, quoted the Washington Post.

There is much American opposition to this approach. For the moment it is damaging. It represents a reversion to old forms of production and to linked subsidies of the kind that we thought that the United States had abandoned after 1995. It will mean direct commodity support of over 50 billion dollars. It will also be counter-productive. Although as the noble Lord, Lord Williamson, indicated, there had been previous reversals of the 1995–96 position by emergency aid, that was post facto. In this case, American farmers are virtually guaranteed the money and, therefore, will make their production decisions on that basis. Precisely because American farmers are being given this form of security, as my noble friend Lord Carter said, the Bill is likely to create the very downward pressure on prices that in internal American terms it allegedly seeks to offset.

Subsidies of this kind are frankly circular and futile. The more they try to protect American farmers from falling markets, the more they contribute to further holes in those same markets. That eventually will be devastating to American farmers and, in the process, very devastating to farmers in developing countries.

However, there are some positive aspects. The noble Baroness, Lady Byford, referred to the measures on conservation. There are also measures on nutrition and on R&D that we would support and which we would wish to see reflected in European approaches. The main core of the Farm Bill is backward looking. If the United States goes down that road, it will appear to have learned nothing from the progress made since the Uruguay round. As the noble Lord, Lord Brittan, implied, there are specific positions in the Bill, such as the dairy levy, which may be directly incompatible with WTO obligations. My information is that the economists are calculating that there is a 30 per cent chance that expenditure under the Farm Bill will exceed the WTO ceilings in total. That presents us with a very real problem in relation to the United States' commitment.

More importantly, the United States does all this in a patently beggar-my-neighbour fashion. The neighbours most beggared by this are those countries of the developing world. The noble Baroness, Lady Byford, spelt out the dire consequences and repercussions of that, as did my noble friend Lord Grenfell.

Together with other noble Lords I do not much like the Farm Bill. It has set us back a long way. However, there are some qualifications. The American subsidies, as noble Lords have said, are still lower than those in the European Union. Under the Farm Bill, as my noble friend Lord Carter has said, the PSE—the producer subsidy equivalent—which is the best measure of equivalent subsidy for the US, is forecast to rise to 60.5 billion euros in 2005. That is about two-thirds of the European level at the beginning of this period of the common agricultural policy.

It is true that in certain sectors, as the noble Lord, Lord Palmer, indicated, there is a closer equivalent and the balance possibly goes the other way, but the overall calculation is still that Europe has a bigger absolute form of subsidy for farming than does the United States. Therefore, we must hesitate before casting too many stones. Nevertheless, Europe is moving in the right direction and America is moving in the wrong direction.

All that, and the size of those subsidies as compared with the support that farming receives in developing countries and elsewhere, indicates the need for Europe and the United States to reduce production support. The European Union, and the United Kingdom in particular, has no intent ion of going down that road. The European Union has already committed itself to cuts in export subsidies, to tariffs and to cuts in domestic agricultural support. The mid-term review proposals on the reform of the CAP, to which I shall turn in a moment, also move us in that direction. Therefore, to answer the noble Lord, Lord Hannay, it is the intention of Europe as a whole, as well as the United Kingdom, to respond to the Farm Bill by taking a strong liberalising offensive in the WTO talks in Geneva.

Internally within Europe, next week Commissioner Fischler will unveil his proposals for CAP reform in the mid-term review. Although no one has seen the final paper, there have been a number of leaks, but I believe that the commissioner intends to be forward looking. I have been greatly heartened to hear the commissioner say in terms that the failings of the US Farm Bill are not an excuse for Europe to drag its heels on its own agricultural reform.

The noble Lord, Lord Williamson, had the right view, that whatever the details of that proposal, the strategy implied will certainly be in the right direction. Those who cling to the old CAP will try to seize on the Farm Bill to argue that the time is not right for Europe to be changing its own policies. Indeed, outside Europe others are already arguing that line, that we should go slow on the WTO negotiations that were launched so successfully in Doha. Developing countries throughout the world have also expressed their repugnance at the signal that the Farm Bill sends to them and are taking what I hope are wrong messages that the Americans have abandoned the liberalising agenda. In our own contacts with the US Government we have been firm and deplored the way in which the Farm Bill gives comfort to those who oppose reform, as was evident in the Bali discussions and the approach to the World Summit on Sustainable Development. We have also emphasised the impact on developing countries. It is true that the world is entitled to expect better from America. Nevertheless, some of the feedback from our American contacts indicates a willingness to recognise a commitment to a long-term strategy of liberalisation and to the Doha process in particular.

At Doha last year, all members of the World Trade Organisation pledged to reach a new draft agreement by March next year. That deadline remains in place and we all are actively negotiating towards it. Therefore, there is no deadlock in Geneva. That process is continuing and that target remains for America as for us.

As for Europe, the case for reaching agreement is clear. We must move away from the traditional forms of CAP and encourage others to do so. Support based on high import barriers, expensive intervention schemes and subsidised exports does not serve European consumers, farmers and the environment well. We want land management support based on developing environmental outcomes, perhaps including the aspects to which the noble Lord, Lord Palmer, referred for support for biofuels. We do not want a policy that continues to be based on market-distorting interventions.

The European Commission has taken a strong approach to WTO negotiations. It has tabled strong and credible proposals and is pursuing them effectively. If that is not done, we risk starting a new cycle of trade wars. We should not underestimate that danger. Nevertheless, I believe that the WTO process will succeed and that the American Administration wishes to engage once more in the liberalising process. I had discussions with J.B. Penn, the deputy agriculture secretary, only last week.

We have been firm in our contacts with the Americans. We have said that we deplore the Farm Bill and have told them that we want a change of approach by the Americans. I do not go as far as my noble friend Lord Haskins, who suggested that the Americans are moving towards a policy of total isolation, but the situation is very dangerous. We should not engage in tit for tat but must say to our American friends at all levels, "Practice what you preach. If you revert to the liberalising agenda, we will be the first in Europe to support you. If you continue down the present road, you risk not only your own liberalising agenda and principles but inflicting great harm on countries and populations that can least afford to be affected in that way".

My thanks again to my noble friend Lord Carter for initiating the debate and to all noble Lords who contributed.

House adjourned at twenty-seven minutes before nine o'clock.