I represented the United Kingdom, with my hon. Friend the Minister of State, at the meeting of the Council of Agriculture Ministers on 11–12 June in Luxembourg.

The Council resumed negotiations on prices for the 1985–86 season for cereals and rapeseed on the basis of a compromise which was before the Council on 13 to 16 May. The Commission submitted 10 draft regulations to give effect to the compromise, including the proposed reduction of 1.8 per cent. in common prices for these commodities. When the Presidency announced its intention to put these regulations to a vote, the German Minister said his Government were not prepared to accept the decrease in cereal prices. He formally invoked paragraph 2 of the Luxembourg compromise by saying that a very important national interest was involved for Germany and that negotiations must be continued until unanimous agreement was reached.

I said in the Council that I had noted that the German Government supported the United Kingdom Government's view that, where a member state declared a very important national interest, discussions in the Council should continue without a vote. Given the German Minister's statement, I said that, in accordance with our position on the Luxembourg compromise, I had to object to a vote being taken and that I was not prepared to vote or abstain. The Ministers from Denmark, France, Greece and Ireland made similar statements. None the less, the Presidency proceeded with a vote. These four member states, together with the United Kingdom, refused to record a vote. Germany also refused to participate in a vote. The regulations were therefore not adopted.

I regret the fact that the Council has thus failed to take decisions on sensible price arrangements for cereals and rapeseed for the next season. This represents a serious setback to the progress which has been made in putting the common agricultural policy on to a more realistic basis. Careful thought will need to be given by the Agriculture Council and the Commission to the situation that now confronts us.

The rapeseed and durum wheat marketing years begin on 1 July and the marketing year for other cereals on 1 August. In the absence of agreement in the Council, the Commission will need to take decisions on how the markets should be managed.

The Council failed to reach agreement on a draft directive covering intra-Community trade in heat-treated milk. Nor was it able to resolve long-standing differences among member states on the authorisation of hormone growth promoters. However, agreement was reached on the text of a directive on control procedures for hormones. Its adoption was delayed pending further consideration of the substances to be authorised.

Several other veterinary directives were adopted, including an important two-year extension of the special import arrangements which the United Kingdom, Denmark and Ireland are entitled to apply as a protection

First, may I ask the right hon. Gentleman to say a little more about the veterinary points, in particular the state of the discussions upon hormone growth promoters? There are few hon.

Members, and certainly not me, who would quarrel with the right hon. Gentleman's constitutional point, that any country should have the right of veto on a matter of national interest. But there is nobody who will not marvel at the sheer obtuseness of the German Government in refusing to face the necessity of cuts in cereal prices, in view of the mounting surpluses and the escalating cost to all member states.

Does this not, however, bear out my warning when the right hon. Gentleman last made a statement: that by reaching agreement on all other commodity prices the Council had thrown away whatever leverage it had and that its tactics were the factor which enabled Germany to reduce the whole of this year's negotiations to a shambles? I hope that this year's lessons will be learned for the future.

Where does this leave the cause of reform of the common agricultural policy, and in particular the right hon. Gentleman's often repeated belief that surplus production can be eliminated by means of price reductions alone? If agreement cannot be reached on a paltry reduction of 1·8 per cent., what hope is there of the Council being resolute enough to impose real cuts? Will the right hon. Gentleman say whether this year's cereals price will be maintained next year, or has the Commission, as was suggested this morning by the Financial Times, the power to reduce prices in its capacity as manager of the fund? When will some of the agriculture Ministers realise that there is a national taxpayers' interest in all countries to reduce the subsidy, currently running at £1·.3 billion, for unwanted cereals? There will soon be an outcry as subsidies and surpluses mount up. The Council of Ministers will be compelled to do in haste what they are obviously too spineless to do in an orderly way, namely, to cut agricultural production, and agriculture will be the loser.

On the hon. Gentleman's veterinary point about hormones, the difficulty is that there is a difference of opinion between individual member states, some of whom believe that a ban should be imposed on the use of growth promoting hormones, even if there is scientific evidence showing that they are harmless. There are others, like the United Kingdom delegation, who say that we should rely upon the scientific evidence, that where there is clearance for certain substances they should be allowed to be used and that where we are awaiting a report on others we ought to wait for the scientists' report before reaching a decision.

I am glad that the hon. Gentleman has no quarrel about the way in which we responded to the German veto on cereals. I agree with him that that was the correct and proper constitutional procedure for us to follow. I share the hon. Gentleman's exasperation over the attitude of the German delegation, but that made the rest of us appear, to use his word, spineless in view of the way in which the German delegation was prepared to use its veto to block a sensible decision being reached. It would have been much better if we could have given a signal to grain farmers throughout the Community that there would be a proper reduction in prices this year.

The hon. Gentleman will remember, however, that last year there was a reduction of about 3 per cent. in cereal prices. I am still not without hope that we can continue to press for a 1·8 per cent. reduction which would amount to a reduction just short of 5 per cent. in two years. During this period production costs in very many countries have increased by perhaps 10 per cent. There has, therefore, been a squeeze on cereal prices in the last two years, when surpluses have been mounting.

Were cereal quotas discussed during the negotiations? Can the right hon. Gentleman assure the House that they will not be sprung on the industry, as they were in the case of milk, which led to confusion and dislocation?

Cereal quotas were not discussed during this Council meeting, but in the past I have brought the discussion around to this point. The majority of Ministers in the Council of Ministers are, I believe, very strongly opposed to cereal quotas. We have to try to get the Community to understand that the best way to control the growing surplus of grain is to cut cereal prices.

Although I support the stand taken by my right hon. Friend the Minister in Brussels, particularly over ensuring that there is a cut in cereal prices, how, in view of this failure, can markets be managed in future? Cereal farmers must be given guidance about the future. What can be done to assist them between now and when a decision is made, bearing in mind that already there are huge surpluses and that there will soon be another grain crop?

I think that the Commissioner understands the need to take urgent action to deal with these matters. In particular, he said yesterday that the Commission would shoulder the responsibility of ensuring that there is not undue speculation in grain because of the legal vacuum. I believe that the Commissioner is well aware of the problems to which my hon. Friend referred, and I hope that we shall be getting some announcements from the Commission very soon.

Will my right hon. Friend enlighten us as to why the sensible British proposals for the reform of the CAP are either voted down or vetoed by what we are pleased to call our Community partners? Does not the German veto exercised yesterday mean that any serious prospect of reform in the CAP may now be declared kaput, and that as the only real control on agricultural spending is the ceiling of resources available to the Community, the only way to get any reform whatever is not to propose or support any increase in the own resources of the Community?

I can say only that if it had not been for the financial discipline that is now imposed upon the common agricultural policy my guess is that we should have been discussing, at this Council in Brussels, considerably more expensive policies than those that we are facing.

The financial disciplines are biting very hard on the common agricultural policy, and rightly so. The main reason why we were unable to get realistic decisions was the German attitude and the German Minister's statement that he was not prepared to accept anything that might depress farm incomes in Germany. I was able to tell him that if we put off taking tough decisions now the dangers were that there would be much bigger drops in farm income throughout the Community in a year or two.

As Her Majesty's Government support the principle of a veto on matters regarded as being of outstanding national interest, will the Minister agree that, in view of the changing and varying social and agricultural conditions to be found in the now 12 EC countries, the moral of the event points to greater flexibility, and perhaps the permission to use national aids and national expenditure when a country wishes to have a supplement over and above common agricultural policy objectives?

I hope that we shall not move towards a more national base under the common agricultural policy. I hope that very soon the member states of the Community will understand that, unless the common agricultural policy returns quickly to realism, we shall have to think fundamentally about the future of that policy.

In view of what my right hon. Friend said about oilseed rape, and the fact that the harvesting year starts on 1 July, what advice will he give to farmers who are waiting to market that valuable crop? Are they to wait until he makes a decision, or are they to wait upon the Commission telling us what price they are to receive?

As I have said, the Commissioner told us yesterday that the Commission will shoulder its responsibilities in the legal vacuum which has so unfortunately arisen. I hope that very soon the Commission will give some proper guidance to farmers as to the way in which it intends to manage the market.

Why does the Minister so conspicuously avoid giving any advice to the Commission this afternoon on how it should apply the guaranteed threshold and how it should manage the market, which is now completely disrupted by his failure to reach agreement?

That was a particularly silly remark, if I may say so. The Commissioner has been sitting in the Council day after day and night after night, listening particularly to me explaining to the Council of Ministers what I believe should happen and how we should return to realism, especially in terms of grain prices.

Regrettable though it is that we have no price for cereals, will my right hon. Friend agree that it was infinitely more important to maintain the principle of veto, otherwise we shall not only lose control over agricultural prices but lose control completely over all Community expenditure?

I am grateful to my hon. Friend. I am sure that we could have achieved a settlement if we had been able to move to the German position of insisting on a price reduction of no more than 0·9 per cent., but I was not prepared to do that; nor was my French colleague, and nor, thank goodness, was the Commission.

Does my right hon. Friend accept that this is a very serious setback to the grain market and could cause great confusion? Did he point out to the Germans and the other members of the Community that the most serious threat to cereal prices at the moment is the United States' declared aim of offering about $2,000 billion worth of export credit guarantee to its own cereal growers? Do not the Americans realise that that in itself will undermine the market and push our prices down?

Earlier this week several of us met the United States Secretary for Agriculture. We were able to discuss with him this extremely dangerous trend in world trade. The United States Government made an offer of about 1 million tonnes of wheat to Algeria, which immediately caused a very considerable drop in the price of grain on the Chicago exchange. That has not exactly endeared American farmers to the United States Government's policy. We tried to explain to the United States Government that, while we recognise that they have lost large parts of their food export market, that is largely due to the strength of the dollar rather than anything else.

What will be the impact of the failure to agree cereal prices in the Community on 1985 budgeted expenditure in the EC? If the German veto—which I support, as the Minister does — means that there will have to be compensating savings elsewhere to ensure that total Community expenditure in 1985 comes somewhere near the financial guidelines, can the Minister assure us that the cuts will not occur in the non-agricultural part of the total Community budget?

I am grateful for what the right hon. Gentleman said about the use of the veto and our response to it.

With regard to the future of grain prices, we must wait until the Commission reacts. Until we get to that point — I hope that it will be very soon—it is difficult to know what will be the impact on the market in the immediate future.

Will the right hon. Gentleman take it from me that the farmers in Northern Ireland will wholeheartedly support him in supporting the veto? To forgo the veto would be a very serious matter and could in the future have very serious implications for agriculture in the whole of the United Kingdom.

Will the right hon. Gentleman keep in mind that the intensive sector of the farming industry in Northern Ireland has been devastated because of low grain prices? Will he do something to make intervention grain available in Northern Ireland?

I will certainly look into that matter, but the hon. Gentleman will recall that I have consistently said that I believe that there is a serious imbalance between the grain and the livestock sectors, and I have been working hard to try to redress that balance.

Will my right hon. Friend accept that we all greatly appreciate his hard work on our behalf in Brussels?

Will he try to clarify for the British farmer where we now stand? Other than the decisions on rapeseed and grain, are all the other decisions this year to stand, such as those on the sheepmeat regime, the beef premium and the other livestock subsidy? We need to have an answer so that we may know where we stand in regard to that sector.

My hon. Friend will recall that the last time I came to the House I announced the agreement on all the other parts of the package. Those stand, and we are just left now with the grain and the rapeseed parts of the package which are not agreed. Those are the parts that the Commission will have to manage between now and the time when the Council can again properly pick up its responsibilities.

Bearing in mind what the Commission has said and its attitude to a movement towards realism, I do not believe that it will take steps which amount to moving backwards from reality.

rose—

Order. I will allow questions to continue for another six minutes, making a full half-hour. There is a very important debate to follow the statement, and I believe that some of the hon. Members who have been rising wish to take part in it. Will they please put their questions briefly?

During this highly unproductive and farcical meeting yesterday, did my right hon. Friend ask those countries which rightly voted to support the veto what they were doing three years ago when we had a price review stuffed down our throats against our veto?

I did that. I expressed the hope that if, at some time in the future, we wished to use the veto, those countries would remember what they did.

Does the Luxembourg veto apply to Spain and Portugal, which are still in transition? Spain can flood our markets with cars, yet charge exorbitant duties on British cars going into Spain. Why did we agree to the entry of Spain and Portugal before we adopted quotas on wine and olive oil—which could utterly ruin the EC agricultural budget if quotas are not agreed in advance?

These matters were not discussed in the Council of Ministers yesterday. Of course, Spain and Portugal will not have the right to use the veto until they become full members.

The negotiations on all agricultural matters were hard fought until the very last minute. I believe that I am right in saying that the last issue settled was the milk quota for Spain.

Is my right hon. Friend aware that this inability to find agreement on sensible but modest reductions in grain prices will ensure a continuation of the imbalance between the livestock and cereal sectors? It is damaging economically as well as politically for the milk producer, who last year was obliged to accept milk quotas, yet will have to bear the cost of high grain prices.

My hon. Friend should recall that the settlement we reached two or three weeks ago meant milk prices rising by 2·5 per cent., a freeze on beef prices and a freeze this year on lamb prices, whereas we had been talking about how much we should reduce the grain price. That does bear out the decision to which the Council has been moving, which shifts the balance away from grain and in favour of livestock.

Surely my right hon. Friend would prefer today to condemn the Germans wholeheartedly for an utterly selfish action — the imposition of a veto on a subject that did not really warrant the use of such a grave national reservation. Does that not show, not only for agriculture but generally, that we need to get away from the atmosphere of support of the veto? The more that we get away from that and use the veto as a rare instrument for real national protection, a truly solemn and profound issue, the more we shall achieve sensible agreement on all things including CAP price reductions.

I plead with my hon. Friend to remember that it is getting into very dangerous country when we start picking and choosing between the use of the veto by various countries. That was the difficulty in which we found ourselves in 1982, into which I hope we shall not get again, because other nations were picking and choosing over our decisions to use the veto. It was right to say that where an important national interest, as defined by a particular Government, is at stake, discussions should be continued without a vote.

Will my right hon. Friend consider whether it is really credible to continue to rely on the hope that the problem of cereals will be cured through price cuts, given the disastrous decisions taken during the last day or two in Brussels? Are we not being driven, almost against our will, to a position of quotas? Should we not be preparing for that so that we can avoid a sudden introduction of quotas overnight, as happened with motor car accessories?

We must do everything that we can to avoid cereal quotas. I believe that they are almost unmanageable and almost impossible to control, especially in some other countries in the Community, and almost certainly in this country.

I share my hon. Friend's pessimism as a result of the decision, but one optimistic note is that the German delegation made it clear that it wanted a transitional year of having no reduction in cereal prices. I just hope that that means one transitional year and that, before long, we can return to a position where the Community can move towards a more realistic policy and avoid the build up of huge, unsaleable, uneatable surpluses.

Is it not clear that, once again, the budget of the EC will be seriously overspent? If my right hon. Friend is not prepared to use the mechanism of refusing to increase own resources, will he please tell the House what mechanism he will use to force reform of the CAP?

I think that perhaps I should have mentioned overspending when it was referred to earlier. I have been alone in asking the Commissioner, at almost every point of the negotiations, whether he remains satisfied that the cost of the package is within the financial discipline that has been agreed for the agricultural budget. He has assured me at every stage that he was satisfied. I have no reason to believe that that is not correct.

As I said in the early part of my statement, I believe that the financial discipline is already actually very effectively constraining extravagances of the CAP.

Is my right hon. Friend prepared to recommend to my right hon. Friend the Prime Minister that if there is no indication of a realistic restriction on agricultural expenditure as this year goes on she should not come to this House and ask for any increase in the Community's resources until a real restriction in agricultural expenditure is achieved?

With respect, that is already being achieved by the way in which the Commission has refused to go as far as some member states have been pressing it to go because there is not the money under the financial discipline to pay for some of those policies.

It is all very well my right hon. Friend talking about financial discipline, but is not the fact of the matter that the Community will spend a damned sight more on agricultural policy this year than last and the only way of stopping that from happening is for the House to say loud and clear that there should be no more own resources until we have sorted out this rake's progress on agricultural policy?

No doubt there will come a moment when my hon. Friend will be able to make that speech in this House at considerable length. All that I can say is that the policy that has been pursued, where spending on the CAP budget must rise at a slower rate than the growth in overall spending, is one to which we should stick, and which the Commission is also in the business of sticking to.

Is my right hon. Friend aware that in just two months' time farmers will be sowing next year's winter crops, and it is likely that they will have to remain in store in 1987, and perhaps beyond with the way that things are going? The Minister must recognise that that position is unsustainable and absurd. What advice is he giving to the industry for which he is supposed to be responsible about the future? How can the Commission manage the market for unlimited quantities of unmarketable grain within its existing budget?

The Commission has moved in before in the event of a legal vacuum to manage the market, so it is not a new position.

The advice that I shall give to farmers is that the Commission has taken sensible approaches to these matters in the past. Clearly, it must have a short time in which to take up its responsibilities to manage the market. I hope that then the proper guidance can be given.