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

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

4.11 p.m.

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

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

What is in the United Kingdom's interests? We did all the hard work from 1947 onwards. The Labour administration of the time--who, I must admit, were

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excellent--produced the Agriculture Act which set up agriculture in this country in a way from which it has benefited for a long time. It was based on strong capital reinvestment with capital improvement grants, a strong research and development base and an acknowledgement that we could not carry on having small farms, on which the rest of Europe was prepared to rely; we had to achieve economies of scale. The national plan of George Brown's time followed further the policy of ensuring that the United Kingdom had a policy competitive with other countries in the world.

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

Paragraph 10 of the report reminded us that,

    "One of the goals of the CAP as set out by the Commission is to make EU agriculture internationally competitive".

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

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

We need to recognise that the reason the Berlin Summit rejected even the preposterously extravagant plans of the Agriculture Council was that it simply could not face up to the implications of lower world prices--which we see inevitably happening--and the decimation of European agriculture. That is where we, as so often is the case, have a slightly--although not totally--different agenda from the rest of Europe

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because, as I say, we have achieved certain economies of scale, we have invested more heavily than many countries and should have a little more confidence than many of the more marginal areas of Europe.

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

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

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

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

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

Those all seem to me to be sensible measures which are clearly likely to be much more compatible with the World Trade Organisation than the production support which we continue to give if only because we

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are being realistic and giving thought to precisely the proposals which are operating in the United States, Canada and elsewhere.

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

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

4.21 p.m.

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

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

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

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

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

First, I recall that the principal purpose of the Commission's communication, Agenda 2000, was to examine the applications for accession and the main questions they raised as well as proposing a timetable for opening the negotiations and giving the

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Commission's formal opinions on those negotiations. It proposed a reinforcement of the pre-accession strategy and a detailed financial analysis, having regard to the prospects for enlargement. If I remember rightly, that document was based on about 10,000 pages of submissions from the applicant countries, together with extensive consultations with them. But I repeat that, fundamentally, it is a document about the applicant countries and the negotiations with them. That is its first purpose.

However, the Commission decided to go further and to deal with other challenges, including the changes in structural policies and in the common agricultural policy. It is important to put the agricultural chapter of Agenda 2000 in that context. It is not presented as a total reform. It is proposed as,

    "deepening and extending the 1992 changes through further shifts from price support to direct payments, and developing a coherent rural policy to accompany this process".

So it is seen as a further movement. It is not a revolution. Some people here would like to see a revolution in the way we operate in Europe. It is an evolution, but we should not underestimate the importance of the evolution which the Commission proposed.

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

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

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

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a few days' supply; and for butter, about a week's supply. That is what we have in stock in the public intervention stores in the Community.

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

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

Taken with the earlier support price cuts for cereals since 1992, the decision at Berlin represents a cut of about 45 per cent in the support price of wheat. That is a significant change. The proposal of the Commission in Agenda 2000 was a cut of 20 per cent in one move in the year 2000 and elimination of the compulsory set-aside. The purpose of that proposal was to reduce the price broadly to world levels in pursuit of a strategy which,

    "could simultaneously avoid the routine use of export subsidies, reinforce the competitiveness of cereals on the single market, overcome the Uruguay Round constraints for oilseeds and, last but not least, bring a good deal of simplification".

Anyone who deals with farming will certainly welcome that. We would be close to switching the common agricultural policy for cereals from a market-supported to a market-based system.

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

In the excellent evidence of the noble Lord, Lord Donoughue, and Miss Kate Timms, I note that Miss Timms expressed the situation very well. She said that when the new member states come to join the Union,

    "they can expect to be joining a policy which has moved quite substantially towards world market price levels".

It is obvious that no wise man would bet on world prices. However, I would be prepared to stake a modest euro or two on the suggestion that when the Berlin decisions are fully in effect, world and European Union support prices for cereals, taking one year with another, will be very close indeed. A number of noble

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Lords have said that they will not be alive then. I am hoping to be alive so that they can cash in their bet if I am wrong on that point!

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

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

4.25 p.m.

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

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

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

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

To me, the two most significant criticisms in the report appear in paragraphs 15 and 17. Taking them in reverse order, paragraph 17 states:

    "One of the aims of the Agenda 2000 reforms was to make rural development 'the second pillar of the CAP'".

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However, the report acknowledges the limited success there has been in this direction. That needs to be addressed urgently.

Paragraph 15 states:

    "Historically the CAP has been much more successful in boosting production than in protecting and enhancing the ... environment."

That is the truest thing that could possibly be said.

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

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

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

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

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

I should add that the scheme is often costly to prepare and many farmers are substantially out of pocket, particularly if they fail to qualify. In order to attempt to alleviate that situation, perhaps the

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Minister and her department will consider ways in which applicants can produce a lower-grade assessment with less commitment and expense, thus allowing MAFF officers to suggest whether or not their schemes are worthy of progression. That would put a lot more confidence in the scheme and perhaps encourage farmers to come forward. However, if the money is not likely to be available, then I suspect the Government will not make it easy for people to apply.

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

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

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

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

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

4.42 p.m.

Lord Bruce of Donington: My Lords, I ask the indulgence of the House to use what we normally call the "interval"--not to make a speech on the report itself, although I should like to do so because it is

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extremely important, but to ask two questions. It must be understood that in asking the questions I make no assertions as to the authenticity of the matters that came to my attention.

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

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

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

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

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

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4.48 p.m.

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

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

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

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

There must be realism. If enlargement is to take place, and if we are to approach the world trade talks in a way that makes quite clear to people the direction in which we are going, we must define our objectives. Where our objectives are to preserve the social and environmental fabric of rural areas and produce high quality, non-intensive food, that will require funding of a different nature. We need to be clear about what elements we expect to remain competitive in on a world stage. This varies from region to region. Even within our own country, it is beginning to be accepted, even by MAFF, that regions with arable production

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and those with livestock production are unlikely to be very competitive on a world stage. The Agriculture Minister has made a number of pronouncements about how certain sections of the agricultural community must find their own niches. We need to ascertain whether there are any home-only markets and consider what role they serve.

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

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

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

As we go through particular reforms, both we and MAFF need to be clear about the nature of the objectives; for example, are they to keep people in farming and in our rural areas? Alternatively, are they designed to make farming more efficient? As regards the time-scale, it is very clear from the report that we should press for reforms well before the year 2006. Does the Minister have any idea of when the Government perceive the earliest opportunity will be in pressing for reforms? Further, how will the Government start to make a good case? In particular, we need to make it clear where rural development begins to offer good value and then go back to our more cynical partners, having proved the case in our

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own rural areas--or begun to do so--of just how effective the second pillar can be. It was interesting to note today that, for the first time ever, newspaper reports stated that people in the UK are spending more on leisure than on food. That may tell us something about the future of our rural areas.

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

4.57 p.m.

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

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

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

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

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Paragraph 14 of the report now before the House warns that in the WTO talks,

    "'compensation' payments may come under pressure, as they are linked to past and continued production".

Indeed, I have heard that the Cairns Group is likely to pursue this line. Announcements in the press this week have confirmed that.

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

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

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

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

I have already referred to intensifying competition. I give a practical example of this. Poultry meat is not as popular in the rest of the EU as it is in the UK. Our poultry farmers suffer as a result of imports of chicken from Thailand. This follows agreements, now three

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

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

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

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

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

I mention a couple of other issues to which my noble friends have referred. My noble friend Lord Jopling touched a raw nerve when he referred to an increase in higher prices and to costs which are not borne by all countries. What will the Government do as regards that situation? As regards the rebalancing of some schemes, on talking with colleagues in the Cairns Group on animal welfare and environmental issues it

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appeared to me that such issues were not of equal concern to them. Under those circumstances, how can the Government get round the issues which affect us directly but do not affect other countries which will take part in the WTO talks? Following a question raised earlier, can the Minister define more clearly the Government's objectives as regards the money paid to farmers to produce food in the first instance but also as regards other schemes which have been mentioned in a social context? I highlight the matters of young farmers entering the industry, early retirement schemes, and support for processing and marketing, which I understand is an option that the Government have at present.

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

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

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

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

5.11 p.m.

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

It has been a very interesting debate. I share with the noble Baroness, Lady Miller, some trepidation about joining in with those who have spent many years wrestling with the complexities and difficulties of the common agricultural policy and who know some of its

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vagaries far better than I. I listened to some of the language used in the course of the debate. To describe the mood as "downbeat" would be putting it as optimistically as I can. We heard talk of "coma" and "depression"; some of the language was downright morbid in terms of the way in which people viewed the possibilities for reform.

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

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

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

I have listened to a number of interpretations of that agreement. As I say, most of them were downbeat. I think that perhaps the noble Lord, Lord Williamson of Horton, was the least downbeat in his assessment of where we have got to. We can all agree that the outcome did not go as far as we would have wished but, against that, we have to recognise that the agreement represents a step in moving the common agricultural policy in the right direction. It is perhaps of the evolutionary nature to which the noble Lord, Lord Williamson, referred. It represents a significant shift from price support to direct payments being agreed, giving the possibility of reducing the economic distortions of the CAP. The changes within it will help agriculture to meet the challenges of further

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liberalisation of trade, including our ambitions for European Union enlargement and the upcoming World Trade Organisation round. An integrated European Union rural development policy was created, providing the basis for a welcome shift of emphasis from production support towards environmental and rural economy measures in the future.

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

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

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

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subsidy position that we are pressing for better disciplines in the United States' support for their exports, such as their use of generous export credits.

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

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

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

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

However, I do not believe that we should ignore the importance of the Rural Development Regulation in establishing a solid foundation for the long-term reorientation of agricultural support towards encouraging sustainable and enterprising rural

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economies and communities and towards protecting the environment. It does recognise the multi-functional contribution that farmers make to rural areas and provides a range of measures to help them to diversify their businesses as they adapt to changing market conditions. It also recognises the need to encourage enterprise throughout the rural economy, in part at least to enable it to adjust to the decline in agriculture's direct contribution. It provides mechanisms, as the noble Duke, the Duke of Montrose, pointed out, which are needed to allow rural economies and communities to adapt to the consequences of agricultural reform.

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

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

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