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Lord Burnham: My Lords, before the noble Baroness sits down, will she answer one simple question? Can she give the House any comfort as regards a further debate of a proper length on the White Paper?

Baroness Symons of Vernham Dean: My Lords, as the length of my reply to noble Lords will have already indicated, there is much to be discussed on the issues surrounding defence and much that I would like to say. I hope that the noble Lord will agree with me that the proper way to resolve the matter is through the usual channels.

5.35 p.m.

Lord Bramall: My Lords, we have had a spirited, interesting and, I hope the Government will agree, informative debate on this matter. I am most grateful to all noble Lords and to my noble and gallant friends who have contributed so excellently and aptly this afternoon. I should like also to thank the Minister who, in her invariably courteous manner--and, as we have heard, at some personal inconvenience to herself--has listened patiently and tried so helpfully to answer many of the points that have been raised.

I very much hope that the Government will reflect most carefully on the various matters put forward by noble Lords who have such considerable experience in this field. Of course, for the time being, the Ministry of Defence is not yet, to coin a phrase, "making it happen" in terms of what the SDR and the White Paper led us to believe will be necessary to meet our foreign affairs and strategic commitments. As regards modernisation, we were smart enough and modern enough to be successful in Borneo, in the Falklands and in the Gulf, so that is a continuing process.

However, whatever the noble Baroness may say, the key lies in resources. I shall echo what the right honourable gentleman the Prime Minister said in another context. More skilled and trained people, better performance and honouring promises requires more funding. This applies every bit as much to defence as it does to the National Health Service. It is essential that resources and commitments are brought in line. If the Government's foreign policy strategy and the pressures from a variety of sources to which they are subjected from time to time do not allow them to make cuts, then resources must be increased and certainly not reduced, as has been happening year by year.

In the hope that the Government will appreciate that this equation can no longer be fudged, I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.


5.37 p.m.

Lord Palmer rose to call attention to the economics of agriculture within the United Kingdom; and to move for Papers.

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The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper.

Firstly I would like to place on record how grateful I am to my fellow Cross-Bench Peers for allowing me this debate. We have not had a full debate on agriculture itself since December 1998 when the noble Lord, Lord Kimball, masterly galloped us through the problems facing the farming industry. Fifteen months on, the farming industry is in a real crisis.

The Prime Minister recently said that parts of the farming industry are in crisis. That, my Lords, is not true. All sectors of the farming industry are in the deepest crisis in living memory, as I shall shortly try to illustrate.

I must declare an interest as someone who tries to farm in the Scottish Borders, but I am an arable farmer who has fared marginally less badly than the other sectors.

It must not be forgotten that no business can go on continually losing money and the horror for farmers is that it is normally through no fault of their own as they have no control whatsoever over their own destiny. We must not forget that it was as recently as 1954 that food rationing ended--my teenage children find that difficult to comprehend, especially when even in the 1970s farmers were still being financially encouraged to produce more food and of course borrow the shortfall. Now we are told, stop, set it all aside, and with world starvation at record levels I find this difficult to understand.

However I am sure that the noble Lord, Lord Mackie of Benshie, who sadly is unable to take part tonight, would have used his well-known trademark and have said something along the following lines: if in l974 you had bought a l00 horsepower tractor, you would have received a grant under the Farming and Horticultural Development Scheme and you would have needed to have sold 78 tonnes of wheat. Ten years ago there was no grant and that same tractor, admittedly more refined, would have required the sale of 159 tonnes of wheat. Last year, had you wished to buy that same tractor, 250 tonnes--250 tonnes--would have to have been sold in order to acquire that same tractor.

These figures alone surely must emphasise the crisis that agriculture is in. I make no apology for painting this gloomy picture. Twenty years ago malting barley was being sold at £120 a tonne. If the price of malting barley had kept pace with the minimum increase in the agricultural wage today, farmers would be receiving £170 a tonne. For those of us who do produce malting barley today, we are lucky to get £70 a tonne. I wonder how the noble Baroness would feel if today she was earning 60 per cent less than she was 20 years ago.

The saddest story of all is the pig sector. Farmers are now obliged to adhere to the strictest levels of animal welfare and in our part of the world are losing £18 for every animal that they sell--not unnaturally, pig farmers are leaving the industry at an alarming rate. And what we must not forget is the horrific effect

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within the whole farming industry that this is going to have. If there are no pig farmers, sales of feed barley will drop dramatically.

Sheep farmers are getting less for their fleeces than they were 50 years ago. Last year the retail cost of lamb was 608 pence per kilogram. In 1999 the farm gate price was 179 pence per kilogram. Turning to milk, the retail price of milk last year was 60.15 pence per litre, and what did the producer get--just 18.37 pence per litre.

While researching figures for this debate I have to say that I became more and more despondent. If we look at the egg sector, the farm gate price for a dozen eggs last year was 27.33 pence per dozen and the retail price was an incredible 137.5 pence per dozen. To summarise, dairy farmers' income is down 41 per cent. Cattle and sheep income is down 52 per cent, and cereal farmers are suffering a drop of 49 per cent.

Another serious problem relating to the economics of agriculture is the price transparency of inputs in relation to our other European partners. To give two small but important examples, agro-chemical prices are 70 per cent higher here in the UK than they are in Spain. A combine harvester is 45 per cent more expensive here than in any other European Union country and I would urge Her Majesty's Government to look most carefully at this disparity.

Another very worrying factor is the dramatic increase in the number of farmers leaving the industry. Ten years ago there were nearly a quarter of a million farmers. Today there are just under 200,000. Another worry is the serious decline in the agricultural workforce. I have been farming for 21 years and I inherited a workforce of 17. Today I am farming a larger acreage with just four.

In the last 10 years the UK's agricultural workforce has declined from 477,000 to 435,000--a drop of 42,000. Job satisfaction is non-existent and farmers are under increasing stress. Last year the rural stress information network received 70 calls. Already in the first two months of this year it had received 27 calls. Grim, my Lords. Even grimmer is the bank lending to agriculture in the UK. According to figures released by the Bank of England, all banks' lending to agriculture, forestry and fishing in nominal terms amounted to some £2.3 billion back in l979 while in 1999 lending totalled some £7.8 billion. This shows an increase of 236 per cent compared to 20 years ago--236 per cent.

I hope by now I have painted a sufficiently gloomy albeit realistic state of our agricultural industry. Now what can be done? The vexed subject of agrimoney compensation, I am sure, will be mentioned by other noble Lords. The deadline for the Government to make a decision on whether to claim is now just seven weeks away.

The current economic climate for agriculture is different to that experienced by other sectors of the economy. While the general economy has grown on average at an annual rate of 2.5 per cent over the last four years, agriculture has just entered its fifth successive year of recession.

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British agriculture is far more vulnerable to exchange rate movements than other sectors of the UK economy since agriculture support prices and direct payments are set in euro. Therefore in agriculture, unlike manufacturing, both the domestic and the export market are directly affected by exchange rate movements. It is important to note that every other member state, apart from the UK, has claimed all the EU funded share of agrimoney compensation, and that some member states have also paid the national top-up. Thus the argument for agrimoney compensation is strong and I would urge Her Majesty's Government to take action before the deadline runs out.

Non-food crops have the potential to make a huge contribution to environmental conservation, rural communities and the agricultural economy, but the inability of the Government and the European Commission to commit resources and to deliver a coherent policy means that this is simply not happening and I believe that it should be.

The development of a robust non-food crops industry is both possible and desirable and its development will make a strong contribution to the objective of sustainable development within the European Union. I greatly welcome the response by the Government to last Friday's debate and I just hope that things will really now start moving.

A mechanism should be introduced which enables non-food crops to compete across the whole of the country; for example, biomass crops should be grown on non-eligible land. If this cannot be achieved we must, at the very least, end the use of the list which restricts the crops which can be grown on set-aside for non-food use. A marketing initiative should be targeted at the retail and manufacturing industries to impress on them the commercial benefits of using crop derived raw materials such as biodegradable plastics, food wraps and even electricity.

North Sea oil is not going to last for ever. The non-food crops sector is in its infancy. For this reason, it is vital that both public and private research and development of non-food crops is encouraged. Advances in processing and utilisation technology and genetic manipulation of the crops themselves will lead to the expansion of opportunities for which crop derived raw materials can be used. More must be spent on research and development. We still only spend £1.1 million a year, and that is a sixth of what Germany spends. We are lagging way behind all of our European partners when we surely should be leading the field.

I much regret that the Government could not accept, at least in principle, Stephen O'Brien's Private Members' Bill in the other place last Friday on food labelling and country of origin. Will the Minister say whether the Government will actively seek a change in the European law to deliver honest food labelling, and how long does she estimate this will take to put in place?

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The Prime Minister has urged us all to diversify, but in really rural areas there is, sadly, no alternative to farming. When I had the privilege to represent Scotland on the ELO, I took its president on a tour of Scotland. We stopped at the bottom of Glenshee and he stared in amazement at the barren mountain face and he could not believe that it was home to 1,000 black-faced sheep.

The Prime Minister has pledged to reduce the amount of bureaucracy. It is ridiculous that the average farmer now spends two days a week form filling. Surely this is unnecessary. Can the noble Baroness tell us when the Government are going to fulfil the Prime Minister's pledge?

What, sadly, all this boils down to is one fundamental question. Do Her Majesty's Government want an agricultural industry in the United Kingdom? If the answer is yes, then urgent, and I mean immediate, measures must be put in place. If the answer is no, then something will have to be done in order to preserve the countryside for those who live and work in it. Otherwise we will be in a scorched earth situation similar to the one during the Napoleonic wars. I cannot believe that Her Majesty's Government will get any thanks or pleasure from that route.

This afternoon the Prime Minister pledged to sit down with pig farmers in order to work out a short and long-term plan to tackle the immediate crisis. Perhaps at last this means that the Government have recognised how serious the problem is, but I fear it will be too little and, sadly, too late.

I implore the Government to take urgent action now in order to secure and to sustain the finest, the safest and most efficient agricultural industry in the world. We surely owe it to future generations, not only of farmers but to future inhabitants of this country so that Britain will always be a green and pleasant land. I beg to move for Papers.

5.51 p.m.

Lord Sewel: My Lords, I congratulate the noble Lord, Lord Palmer, on securing this debate and on the excellent job he has done in outlining the problems and difficulties facing agriculture in Britain today.

However, I think that we have already reached the stage where expensive, short-term palliatives are no longer sufficient. If my memory serves me correctly, when I was in the Scottish Office we supported agricultural jobs to the equivalent of something like £20,000 per full-time job. We spent more on agricultural support than on all other industrial support put together.

We face something which is not a British problem; it is primarily a European problem. I have a deep and abiding hatred of the common agricultural policy. It is an expensive failure. It is a con on both the consumer and the producer. It has failed for a number of reasons. First, it produces surpluses in all major commodities at prices which consumers are unwilling to pay. Secondly, it penalises efficiency through such measures and nonsenses as milk quotas, and prevents European agriculture from competing effectively at world market

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prices. It is expensive to both the taxpayer and the consumer. Because it is based primarily on production, it results in environmental degradation. It has been a failure because it has been unsuccessful in its primary objective--as the noble Lord, Lord Palmer, indicated--of retaining the agricultural population. Its whole basis and rationale has been undermined. But, above all, it distances the producer from the market and leads to an invidious form of dependency.

The time has come to examine the case for public support of agriculture. Traditionally that argument has been based on three major components. The first concerns the need for food security, which was clearly appropriate in the years immediately after the Second World War and during the 1950s and perhaps a little later, but it is not appropriate in the modern world. The idea of interdependency and globalisation makes national food security a total nonsense.

The second argument is that it is appropriate to support agriculture in order to even out the troughs associated with an industry subject to volatility. I agree with that to an extent, but why single out agriculture in this way? Other industries are subject to volatility and the response has been for the producers themselves to accept responsibility to tide themselves over troughs and to get through to peaks. In agriculture that opportunity exists through various forms of hedging and also through security of long-term contracts.

The third argument, historically, has been that of import substitution. Superficially this is attractive. However, I think that we all remember that following the import substitution argument was the great folly in economic policy of the 1950s and 1960s. It would be possible to have a Scottish pineapple industry if we did not wish to import pineapples from other countries. But just imagine the cost of having, and supporting. a Scottish pineapple industry! A much sounder policy is based on comparative advantage, and doing what we do best, doing it well, efficiently and economically. That means, I hope--despite the absurdities of the common agricultural policy--that there will be no Scottish pineapple industry.

The fourth argument, which I believe is a much stronger argument, is that there is a need to support agriculture on social and environmental grounds. Those cases are much stronger. However, I believe that the social change argument is limited to enabling those involved in agriculture to manage the adjustments necessary when major structural change in any industry is under way. I believe that government have a responsibility to enable that to take place as painlessly as possible, unlike what happened under the previous government in some areas of heavy industry, particularly coalmining.

The environmental protection argument is the strongest of all because I believe that our citizens are willing to pay for a living, active, well managed, environmentally sound countryside. That requires a degree of change of mentality among some producers. They speak easily about being guardians of the countryside and that is right and proper, but that guardianship also requires a commitment to

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environmental trusteeship. I hope that government will increasingly find a way to support environmental protection and enhancement.

If we look to the future, I am convinced that the way forward is a combination of niche quality markets, such as Scottish beef--although I would say that, wouldn't I? That requires proper labelling; there is much to be done on the labelling side--a concentration on following through further efficiency gains and freeing up regulations and controls to enable us to compete at world market prices; and the element of countryside management. However, the tragedy is that both at a European and British level we do not have the vehicles to deliver these policy objectives. Agenda 2000 was pretty much of a damp squib in terms of moving the agricultural reform debate forward.

In the short term I think that it is inevitable that governments will be faced with more and more demands for direct support. I do not think in all honesty that that is a long-term, sustainable policy. The only hope is that over the horizon--recognising the failure of Agenda 2000--we face the WTO round. That will result in more liberalisation. It will be a tougher and, I think, in many cases an unwelcome development, but an increasingly necessary way forward. We must find the means by which our own agriculture can adjust to those changes.

5.58 p.m.

Lord Kimball: My Lords, the noble Lord, Lord Palmer, has done an immense service to this House and to the countryside, in particular in the way in which he has drafted his Motion so that we can concentrate on the economic hardship in the countryside.

Time forbids me to follow the noble Lord, Lord Sewel, in what I can only describe as a vivid and accurate requiem for the common agricultural policy. I declare an interest as a small farmer and a deputy president of the Countryside Alliance.

Perhaps I may briefly look at what I feel are the main economic problems. The BSE crisis is exacerbated by the continuing refusal of the French and the Germans to accept our exports. The brief that we have received indicates that the pig industry is well served by its association. We recognise the problems it has with cheap imports and the very high standards of pig welfare imposed on our pig farmers. We must find a way of adjusting those into a more economic frame.

I should like to deal with two other points. First, the old threat of modulation is now a reality in the countryside. The Agenda 2000 reforms allowed voluntary modulation among the member states of the European Union on one condition: that the money saved in modulation was put back into green box rural development schemes. When she responds to the debate, I think that the Minister will agree that originally her department wanted to abolish the direct aid payments for both the arable aid and headage payments. Instead of achieving that, we are taking a small step in the right direction but on the wrong basis.

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Under modulation we can start reducing these payments over the period 2001 to 2006 by a maximum of 20 per cent. The IACS payments come direct from Brussels, but the green box payments, these payments that we are now saving, have to be matched by the Treasury. So we can see another element which does not make it easy for the noble Baroness--even if she wished--to help in this way.

Perhaps I may look quickly at the figures for the next six years: £500 million for countryside stewardship schemes; £140 million for organic conversion; £100 million for farm woodlands; and only £40 million for marketing, where more money could make an enormous difference in the present economic circumstances.

When she comes to respond to the debate, I hope that the Minister will be able to give some comfort to the industry, particularly in regard to a matter on which I have pressed her before. On what business units are the modulation payments based? Today many farmers amalgamate in order better to use their capital and equipment. The modulation payments should be made on the basis of the acreage owned and not on the acreage of an economic business unit. The Minister could help if she took the remaining 80 per cent of these payments and paid them under the environmental cost compliance payments. I doubt whether the Treasury would allow her to do that, but it would help if she could say what progress she is making.

In conclusion, perhaps I may deal with one other economic matter. I was privileged to represent in another place one of the major plant breeding establishments in the country at Rothwell. The economics of agriculture demand an improvement in plant characteristics in order to lower production costs and increase yields on existing farmland. The very people who are against genetically modified crops are surely in favour of not increasing the acreage that is cropped throughout the rest of the world.

The Government have run away from the question of genetically modified crops. The farming industry as a whole needs this new tool to obtain the benefits of improved seeds. We must not be deprived of our place in the world market in the development of this science. Despite the reassurances of the scientific community, people may not be convinced about the safety of genetically modified products. The Government should put into effect, as recommended by the Agricultural Select Committee, a proper system of labelling of genetically modified food. People can then choose either organic products or genetically modified products.

In the time available, those are my four points which I believe could help the industry economically.

6.4 p.m.

Earl Ferrers: My Lords, as I am involved in agriculture, I, too, should declare an interest. I thank

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the noble Lord, Lord Palmer, not only for introducing the debate but for the very clear and constructive way in which he spoke.

He said, quite rightly, that farming is going through its worst depression for 60 years. That is so. Some 22,000 farmers and their staff have left the industry in the past 12 months; 10 per cent of farmers are on anti-depressants; 25 per cent of tenant farmers have marital problems due to the crisis; 50 per cent of tenant farmers have difficulty in finding the rent; and 80 per cent have stopped or reduced investment. That is a fairly grisly story.

If one looks at the pig industry--as the noble Lord, Lord Palmer, did--one finds that the number of pig farmers, their workers and those who supply the pig industry has dropped by 30,000 since the start of the crisis, and another 30,000 are under threat.

Dairy farms are running at a loss. The UK price of milk is 16p per litre; the price in Denmark is about 26p per litre. I understand that some people in the United Kingdom are getting even 13p per litre, with the likelihood that that may be cut by 2p per litre. Milk is now becoming cheaper than bottled water.

What are the causes of all this? One of the causes is that conditions in the European Union are not equal. Imported pig products can be packed in the United Kingdom and sold as British food. Imported meat is often produced under conditions which are banned in the United Kingdom and, therefore, it is produced more cheaply. Sow stalls are banned, yet doing away with them puts up the cost of a pig by £2.

The noble Lord, Lord Palmer, referred to the fact that combined harvesters and chemicals are much cheaper on the mainland of Europe. That is so. But the worst problem is the strong pound: £2,000 million of agrimoney has been made available since 1997 for the United Kingdom to accept for exactly this position. When a country's currency rises, it is entitled to claim it. Other countries have done so; we could do so. Some £2,000 million is available; only £520 million has been claimed. Many bad things are said about the European Union, but if there is something that the United Kingdom can take advantage of, we should do so.

The Government can help. I know why they do not: the Treasury is frightened. The Treasury is always frightened. But we are seeing an industry going down the pipe, as it were. That does not worry the noble Lord, Lord Sewel--he thinks that that is okay--but it worries most of us. It is unnecessary because the Government can help.

I do hope that the Minister will not say "Restructuring the common agricultural policy is the answer". Of course it needs to be restructured, but that is long-term stuff. When one talks about the industry restructuring itself, sometimes that seems to be ministerial speak for "Let them go bust" or "Let them get into larger farms".

The environment and wildlife are the "in" thing. The noble Lord, Lord Sewel, referred to that too. He said that he would like the environment to be looked after. I do not think he mentioned wildlife, but that was part of it. I do not believe that this country should be

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viewed as a place for a kind of grandiose gardening scheme. Agriculture is important, and upon the success of agriculture depend all these other things. The Government can help but, if I may respectfully say so, they do not.

The climate change levy cost the industry 10,000 jobs and £11 million in the first year. Ask any farmer and he will tell you that bureaucracy is becoming intolerable. The hedgerow regulations--those lovely things--criminalise people for taking out hedges, and yet the European Union is to introduce regulations which will criminalise people who allow hedges to grow too big and to grow into fields. That is a complete contradiction. One really must allow some latitude to people in agriculture.

We have gone completely crazy over pesticides and chemicals. I agree with my noble friend Lord Kimball with regard to genetically modified foods. We do not know what they are, but they should be given a chance to be tested properly. I hope that the Government will condemn Greenpeace--the organisation of the noble Lord, Lord Melchett--for vandalising other people's crops and trespassing on their land. It is wrong; it is inflammatory. The dear old BBC puts a picture of this time after time on the news, inferring that that is what is being done.

Perhaps I may make one further request. Under the Bill of the noble Lord, Lord Watson, in Scotland it will be wrong to kill a mammal with more than one dog. Farmers who are plagued by rabbits normally shoot with a number of dogs. That will become a criminal offence. The Prime Minister said,

    "Let me make this clear. As long as I am Prime Minister, I guarantee this Government will not allow any ban on shooting or fishing".

Will the Minister please confirm that?

6.10 p.m.

The Lord Bishop of Hereford: My Lords, we are all much indebted to the noble Lord, Lord Palmer, for introducing this debate. It is a further opportunity to draw attention to the parlous state of farming and to the wider rural economy which depends entirely on the well-being of farming.

The debate is about economics. Let me pose the question: what economic factors need to be in place for it to be possible for an industry to flourish? In this case, what are the economic prerequisites for a thriving agricultural industry? They are fairly obvious: fertile land; a good climate, a well-trained and well-motivated workforce equipped with efficient machinery; measures in place to guarantee food safety, such as traceability of livestock; good standards of animal welfare to reassure the public; a large market nearby, a substantial population needing food; and--an economic as well as an environmental benefit--short distances over which the food needs to be transported.

By what mischance or combination of inaction, folly, obstinacy or human error have we reached the point at which our farming industry--which is richly blessed with both natural and man-made advantages,

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including all the economic prerequisites I mentioned, and ought to be immensely flourishing--is in a state of acute crisis? Why is the rural economy malfunctioning to such a disastrous degree, and what can the Government do about it? In a moment I shall mention some ideas, and I look forward to the Minister's response.

First, perhaps I may mention the important debate which took place a week ago in the General Synod of the Church of England. The Synod passed a unanimous Motion addressed both to Church people and to government, expressing its strong concern for the farming industry: for farmers, farm workers and their families, and especially for the particularly hard hit tenant farmers. There was appreciation of the direction in which government policy is moving with the rural development regulation proposals, and much appreciation of a helpful letter from the Minister, Nick Brown, received by the Synod just before the debate, setting out the basis for a long-term farming strategy. But there was an urgent plea for short-term help, so that businesses can survive to take advantage of the new opportunities that we hope to see. We called for a retirement scheme for those who want to leave the industry with dignity and are presently trapped in it; for much more rigorous and informative food labelling; for a reduction in the crippling burden of red tape and paperwork; for further help for those voluntary organisations which are struggling valiantly to provide pastoral support; and help to the victims of the present crisis. Church people were urged to support that work, and to buy locally produced food. It was an important and deeply serious debate. The mood was sombre, but not entirely without hope.

So what do we ask of the Government in order to keep that hope alive? Clearly, there are some things that the Government cannot do. They cannot undo the globalisation of trade and the enormous increase in the amount of imported food that is available. However, I suggest that the Government could do five things. First, they could have a more careful regard for the delicate and complex inter-relationship of economic factors in farming: for example, the removal of the crippling abattoir charges which threaten to destroy meat production and precisely the kind of diversification which the Government say they want to see.

Secondly, we ask the Government to draw down the agrimonetary compensation which was negotiated, as the noble Earl, Lord Ferrers, said, precisely to tide farmers over this kind of currency fluctuation. Yes, it would mean match funding. Yes, it might mean the end of the UK rebate. But it would trigger more EU money, since Brussels' contribution to the EDRP and Objective 2 depends on current spending levels.

Thirdly, we ask the Government to abandon the uniquely pedantic way in which the UK interprets EU directives, with enormous cost consequences, especially in meat inspection charges. Fourthly, we ask the Government to set manageable financial thresholds for the help that is on offer. At present, many small farmers who are most in need find that

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they cannot afford to benefit from the help that is on offer. That is particularly true in relationship to the mechanism of countryside stewardship.

Fifthly, we ask the Government not to impose the proposed pollution tax on pig and poultry farmers and to lift the threat of the climate change levy on horticulture. All of those are theoretically virtuous taxes, but they would have the effect of further damaging or destroying these fragile businesses and helping our overseas competitors. In the UK it would mean more unemployment, more distress and, in the end, greater cost.

The farming industry has changed, is changing and is trying to help itself. But in the short term it faces real disaster: a domino effect of one sector dragging down another. As pig and poultry farmers go out of business, they will stop buying feed from their arable neighbours, creating an agricultural melt-down on a scale that will make today's heartbreak, anger and distress look quite trivial.

Heartbreak, anger and distress are not economic factors but they have economic causes, and economic solutions are available. We hope and pray that the Government will do all in their power to provide those solutions. The noble Lord, Lord Sewel, said: let us do what we do best. I absolutely agree. We have a brilliant farming industry. Let it do what it is best at doing.

6.16 p.m.

Baroness Young of Old Scone: My Lords, I declare an interest as a taxpayer. Agricultural policy in this country is no longer stacking up. MAFF spends £3 billion of public money, and what is the result? We have food surpluses; a loss of public confidence in food; a decline in the agriculturally related element of rural communities--although I must stress that other elements of rural communities are showing remarkably robust performance figures. We certainly have a degraded countryside and a serious decline in wildlife. And 50 per cent of farmers are in financial trouble. I say 50 per cent. There are, of course, 50 per cent who are not. We should not overlook the point that the present level of agricultural incomes is no lower in real terms than it was in 1985 and 1990. We have seen successive emergency bale-outs to the agricultural industry, on top of the £3 billion, of £787 million since 1997. So the public have a right to question that scale of public support, and a right to ask what they are getting for their money.

There have rightly been calls for a new future for the agricultural industry. But the new future that seems to be envisaged is one that needs to be questioned. It implies restructuring, bigger holdings, more efficient, competitive farming, able to hold its own and to export at world market prices. I should like to challenge that single model. In terms of what is needed for the future, it is only one of a range of models, all of which need to co-exist and some of which will need public subsidy for the future.

As we have seen over the past 15 years in the forestry industry, we want to see a move towards multi-purpose farming which is about safe and

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healthy food production, environmental management, diversification to provide opportunities for access and recreation, and building new social and community fabrics within the countryside. The noble Lord, Lord Palmer, asked whether the Government wanted a thriving agricultural industry. I am sure that the answer must be yes--but not at the current social, environmental and economic cost.

My idea for a new model of multi-purpose farming is not a new one. However, it deserves some exploration of its components. There would indeed be some intensive, competitive, large-scale farming which would not be dependent on subsidy, although I hope that even within competitive and intensive farms we should see space for minimum environmental conditions and places for wildlife.

Alongside some areas of the countryside where that intensive agriculture would take place there would also be a whole range of other models: organic farming, depending primarily on premium prices rather than on subsidy, although possibly with some subsidy to pump-prime the process. There may well be other premium price accreditation systems which can be developed and which are different from the organic system but nevertheless desired by the public.

We should also see local farming systems developed: niche farming, regional produce and local production and marketing. Some subsidy will be necessary to help pump-prime those local and often environmentally sound farming systems. But we should also see some marginal farms, which by no stretch of the imagination would the market support. Their major products will be other public goods, countryside management, landscape, access, wildlife, the environment and the environmental services that many eco systems provide. We should not be ashamed to support them through subsidy because they are providing public goods that we all need and require.

We want diversification in many of those systems. Already 58 per cent of farmers receive money from outside their farms. We also want all those systems to deliver minimum environmental standards and perhaps receive subsidy also for environmental management over the minimum.

There will soon be more than £300 million in environmental payments, all aimed at counteracting the damage caused by the £3 billion of mainstream perverse subsidy. The Government deserve credit for recent moves to enhance the figure to that level, but why is that money being spent simply to remove the adverse effects of mainstream subsidy? Swift progress needs to be made with the new model of diverse agriculture that I described and reform of the perverse subsidy systems. There may be savings in public expenditure for a higher level of public benefit. That might even please the Chancellor.

6.21 p.m.

Lord Vinson: My Lords, I declare an interest, as I farm extensively in one of England's remote rural areas where there are more sheep than people, close to the noble Lord, Lord Palmer--to whom we are indebted for this timely debate.

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Behind all our considerations lies the basic problem that no country wants to run out of food. Governments world wide subsidise their agriculture to ensure supply. The consequence is over-production. When a commodity is in surplus, prices naturally fall. Governments move in with additional subsidies, which in turn create even more surpluses and prices fall still further. Farming internationally is now in that phase.

We also have in power a new generation of politicians who have never personally faced the rigours of food rationing and are fed up with the whole subsidy exercise, and whose instinct is to say, "Why not let agriculture go hang?"

Agriculture is different because it works to a far slower timescale than most industries. It cannot be switched on and off. It takes 10 years to build a balanced dairy herd and six years to build an age-balanced sheep flock. Live animals cannot be kept in store but must be sold, whatever the market price. Agriculture is deeply dependent on the weather. Last but not least, it is directly exposed to basic world commodity prices at market clearing rates.

It is a chimera to imagine that the world can produce food at the prices on offer. Only 5 per cent of world foodstuffs are traded. The rest are disposed of under other arrangements, at higher prices.

Britain is exposed to the effects of an over-valued pound. It is all very well to say that farmers should hedge exchange rate volatility but that is not possible given that farming is done in small packets. An industry that is the least inflationary of all is currently crucified by the high pound against the euro. It is a pity that the Government do not take advantage of the agrimoney compensation arrangements, which were specifically designed to alleviate that problem.

There is a real problem--not least confirmed by the ghastly figure for suicides among farmers. Prices have dropped between 10 per cent and 30 per cent in most sectors. Milk is selling at half the price of bottled water in supermarkets. Four years ago, agricultural output in this country was roughly £20 billion annually and was one of our biggest industries. Output is now £16 billion. The impact on rural areas is enormous and no amount of diversification can fill the gap.

The underlying problem is that agricultural products are too cheap. Supply and demand have got out of balance. If food is being sold well below the cost of production, who is subsidising whom? America currently has massive farm bankruptcies and the home of free enterprise is not letting its farms go into free fall. America is subsidising its farmers, as is Canada, by billions of dollars a year because prices have fallen too low to sustain output.

One school of thought is that we should abandon agriculture and import our needs. The noble Lord, Lord Sewel--who is no longer in his place--may be among those who think that. That argument is attractive and simple but wrong. If we abandon agriculture we would have to import 20 million tonnes of grain, which would have an electrifying effect on the Chicago market. Prices would go roaring up and,

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apart from a balance of payments crisis, consumers would be no better off. There is also no way that America or Canada could supplant Europe's grain needs. America's grain production is some 300 million tonnes a year. Europe's is 200 million. Attempting substitution by American or other world production would be wholly unrealistic and largely unnecessary in terms of comparative advantage.

It is essential that governments make certain that grain is priced at a level that will ensure enough production without creating a level of farm bankruptcies that would undermine supply.

What, then, is the most appropriate mechanism for governments to support agriculture and thereby much of the rural economy that so depends on it? Food is currently too cheap. The customer buys food cheaply but subsidises the farmer indirectly through the tax system. We used to have a deficiency payment system that supported the markets at a price at which the average farmer could just make a living and no more. Good farmers did better, bad farmers did worse. The consumer benefited by direct low prices. We should try to persuade our European Union masters to return to that system.

As a nation, we need to make up our minds whether we want an agricultural industry that competes on level terms with the rest of Europe, is not handicapped by bearing the direct costs of excessive regulation and can pay a decent wage to its workers--to enable them to share in the national prosperity to which they have contributed so hugely over the past few years.

We are dealing with a huge, complex and varied industry. The subject needs to be considered factually and unemotionally. I hope that this debate will contribute in that way.

6.27 p.m.

Lord Williamson of Horton: My Lords, earlier today we had an excellent debate on defence. But there are good precedents for beating our swords into ploughshares. I am grateful to the noble Lord, Lord Palmer, for initiating this debate. It could not be better timed.

Before considering the action taken recently by the Government and the action they might take in the interests of British agriculture, how is it that farming in Britain--which flourished for many years under the common agricultural policy loved by agriculture Ministers and unloved by economists--finds itself in severe difficulties? It is surprising how often the new direction of agricultural policy launched by the MacSharry reforms of eight years ago and implemented by governments in recent years, and the decisions taken at Berlin last March, do not seem widely comprehended. There are sleeping beauties everywhere and a kiss or two is needed to bring them into the new millennium.

There are three principal reasons for British agriculture being in recession, with a fall of almost £4 billion in output value since the mid-1990s and a drop of 60 per cent in income in real terms. The first is the change in agricultural policy, which is reducing or

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removing support from market operations--fully or partially replacing it with direct grants to farmers. When I was in Brussels many years ago and we were spending £17.5 million a day on agricultural support in the European Community, I used to ask whether anyone had ever seen a cheque to a farmer. The answer was never, because support was primarily given by intervention in the market, export refunds to traders and so on.

Has anyone in recent years seen a support price increase for an agricultural product? The answer is that there have been practically none. Prices are being frozen or reduced to world price levels. It has been government policy for some years to reduce agricultural support prices, at least in real terms--thus benefiting the consumer--and move to direct compensation for farmers, that being likely to increase the cost to the taxpayer. Those changes can be illustrated by the latest package of March 1999 when the decision was taken to cut the cereals intervention price by a further 15 per cent in two steps from July this year, the beef intervention price by 20 per cent over three years and the support price for milk by 15 per cent from 2005, and increase some direct grants in consequence. Those price cuts will give an economic benefit of about £1 billion a year and, if passed through to consumers, will knock about 2 per cent off the retail food price index. The direct grant and other changes will increase the EU budget costs by about 2.5 billion euros when all the changes are fully implemented. The Government estimate that those measures will knock about 5 per cent off total farm income, although some may be regained by the separate rural development measures.

The second reason, which has already been mentioned, is the strong pound. Important sectors of agriculture are tied into a system of support prices and direct payments. Too much so, of course, but we must face facts. Under the agricultural policy these prices and payments are expressed in euros. It is thus a genuinely common policy for farmers in 11 other European Union states, and possibly soon in 14, but because the UK is outside the euro zone British farmers suffer exchange rate risks, not just through the markets but also through the support arrangements. The question is whether we have done enough to minimise the disadvantages which British farmers suffer from our non-participation in the euro zone. I think not.

The third reason is that British farming is still suffering from the consequences of the BSE epidemic, about 150,000 cattle having been lost directly from contracting the disease and with widespread disruption of farming and the food supply chain. I recognise that the Government are currently bearing some of these costs, in particular the cost of inspections, the removal of specified risk material and the cattle passport, but the beef industry suffers continuous losses of value. Other costs fall also on pigs, poultry and sheep. We are still paying a high price for not rigorously respecting the law on the ruminant feed ban.

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Now for the good news and what might be done. For supermarkets and consumers it is good news almost everywhere. For farmers there are some signs of recovery in prices. US winter wheat plantings are at their lowest level in 28 years and lamb prices have recovered, finally hitting £1 per kilo. There is also good news from the government side given the way in which the rural development plan for England, which was launched by the Minister on 2nd February, is being actively pushed forward, with very good officials engaged in this work, including the countryside stewardship scheme, and emphasis on the environment and the wider rural economy, financed by EU funds and modulating payments under direct grants.

I propose to the noble Baroness two actions. First, the cost of inspection of specified risk material from cattle and sheep should be considered, correctly, as a protection of human health and should be borne by public funds, not just for a period but indefinitely. Secondly, the Government should adopt the principle that funds available from the European Union for agri-monetary compensation should normally be taken up fully, not partially, and matched by the national contribution. I understand that the amount at issue is about £225 million from the EU and £225 million from national funds in the year 2000. Even allowing for our budget contributions to the EU payment and the effect of the budget rebate, there would be a substantial payment--about £65 million, I believe--to British farmers by taxpayers in other European Union countries. Why do we not accept this kind gift from foreign taxpayers?

6.33 p.m.

Lord Willoughby de Broke: My Lords, I am grateful to the noble Lord, Lord Palmer, for his masterly introduction to this debate and exposure of the problems that face British farming today. Some years ago Noel Coward wrote a song entitled, "Bad Times are Just Around the Corner", which contained the lines,

    "In rather vulgar lettering a very disgruntled group have posted bills in the Cotswold Hills to prove we're in the soup".

I declare an interest as a member of a very disgruntled group of Cotswold Hill farmers.

For British farmers bad times are not just around the corner; I fear that they are already here. We are hurting badly, as we have already heard this afternoon. I am sure that we shall hear more from other contributors later. What rubs salt and pepper into the wounds of British farming is that the Government seem to be unable to offer much beyond platitudes and bromides. The Prime Minister on his visit to the west country encouraged farmers to diversify, for example into organic farming. I remind noble Lords that the door has been slammed in the face of many would-be applicants because the organic farming scheme has run out of money. In any case, can organic farming ever provide more than, say, 5 per

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cent, or a tiny amount, of British farm income? It is certainly not a solution to the difficulties that face the whole of British agriculture today.

How can the Government make encouraging noises about diversification and enterprise when they increase rather than decrease the burden of regulation on small businesses, as the noble Lord, Lord Palmer, pointed out in his introduction? A good example of that is the Meat Hygiene Service. The Government like to say that they are listening. I am aware that the noble Baroness does listen to our debates and Questions very carefully, but sometimes it appears that her department has turned off its hearing aid. If the Government are listening, why is the MoD still buying 75 per cent of its chickens from France when that country is rubbishing our beef and still banning it illegally from sale? I produce exhibit A, which is a bottle of French milk bearing the label,

    "Savourez-le! ... Il n'a subi aucun traitement conformement a la reglementation".

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