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Dairy Sector: Eec Report

Volume 374: debated on Tuesday 5 October 1976

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rose to move, That this House takes note of the recent proposals of the European Commission for the Dairy Sector (R/1734/76 and R/1742/76), and of the Fifty-sixth Report of the European Communities Committee on those proposals. The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. First of all, I should like to present my great regret to be standing here in the place of my noble friend Lord Walston, who was to have initiated this debate. He cannot be here since he has to be at home with his wife who, sadly, is ill. My noble friend asked me to take his place and I shall try to do so, but I simply cannot be an adequate substitute, in spite of the fact that I was the chairman of the Sub-Committee which produced the report we are now going to debate. My noble friend has a very comprehensive knowledge of the milk production industry, in which he has engaged very successfully over many years; and although we talked it over and he gave me his notes and I shall try to convey to your Lordships the sense of them as best I can—and I can read nearly all of them—of course I shall not be able to put over the points of my noble friend as he would have done, and my remarks will come out as an amalgam of his opinions and mine, about which I hope we shall not disagree.

To my noble friend on the Front Bench—and may I say how glad I am to see him there—I should like to say how very much I personally welcome him here. It is most valuable to all of us that he has had such wide and long experience of agriculture and its problems and, in addition, has a practical acquaintance with EEC matters which probably cannot be rivalled in either House. He may be ruminating—that is the right word in this context—that had it not been for a stroke of fate, instead of taking part in this debate on the milk surplus he would have been sitting up late working out how to get more money for British pig producers without devaluing the Green Pound. Perhaps my noble friend will tell us which of those alternatives he might prefer.

However, I must resist talking about the Green Pound and turn now to the report. I regret that it is perhaps not quite so helpful as it might have been, because we produced it with such speed that there really was not time for second thoughts. I should like to thank our special adviser for his comprehensive drafting and also to thank the printers who did a specially quick job for us. We have not time for proof-reading, and there is one glorious misprint which appears in the Opinion of the Committee where "butter promotion" is referred to, whereas it should have read "better promotion". When one added "raw milk" and "dried skimmed milk", it would fit very well. The Committee meant to infer, of course, that in the rest of the EEC very little effort is made in the promotion of the sale of milk to compare with what is done by the Milk Marketing Board in this country.

My Lords, the Commission say that there is an overall 10 per cent. overproduction of milk in the Community. That is the problem. It has been building up for a very long time, since it is a very difficult one to tackle, economically and therefore politically, because the way of life of so many people depends on milk production. The Commission are at last putting forward some practical ideas of a kind which they hope will be politically acceptable.

In broad terms their thinking appears to be that since about 25 per cent. of milk production comes from herds of 10 cows or less, if they got rid of half of those herds the supply would be about in balance—am I having the attention of my noble friend? Is he listening?

The supply would be in balance provided that they can prevent increased production coming from other herds. To achieve this they propose some fairly complex measures which your Lordships will be glad to hear I shall not enumerate. They arc in the Commission's document and they are outlined in the Sub-Committee's report. The money they propose to raise by means of a levy on milk production and they call it a co-responsibility levy, which means that the producers must share with the Commission the effects of their over-production. This is a good idea but, like most good ideas, it depends upon how well it is presented and put into practice, and in my view the Commission made the mistake in their presentation by proposing to tax vegetable oils in the interest of what they see as fair competition.

Besides our Committee condemning this proposed tax because it will put up prices at home and invite retaliation abroad, I think the milk levy itself could become synonymous in farmers' minds with a form of taxation. It is important that the levy is not seen as a form of taxation. But the levy must not be seen as an arbitrary tax. It must be seen as contributing towards costs incurred by over-production. It should bear a direct relationship to the amount of overproduction; that is, the cost of storage and the disposal of the surplus.

The levy would have the effect, of course, of cutting the price to the producer and, that being so, one must consider how sensitive in practice the production and sale of milk is to its price. In the report I think we may have laid rather too much emphasis on the effectiveness of price manipulation in affecting demand and supply, because other factors may be equally, or more, influential upon the producers and consumers. A reduction in the producer price of milk could well have the opposite effect to that intended, as farmers would be likely to increase their herds to make good their income. With consumers, we all know that the availability of production is crucial. If you cannot get the milk where and when you want it, you do not buy it. That is where our Milk Marketing Board does so well and the French, for example, do so badly. It is difficult to know where to get half a litre of milk in France. You might find it in the ironmonger's, perhaps.

Then there is fashionableness, and other forms of subjective desirability of a product, such as good promotion, and shortage. Shortage puts an increased value on a product, and I am not being cynical in suggesting that if it were rumoured that there was going to be a shortage of butter this winter the whole of the EEC butter mountain would disappear into private deep-freezes in a week, because that is human nature—we tend to want the things that are in short supply, whether we need them or not. That is one reason why, in my belief, it is in the interest of the consumer as much as, if not more than, in the interest of the producer to keep the Community in surplus in agricultural produce, because surpluses always keep prices low, sometimes to vanishing point.

I have dwelt upon the significance of price at a little length, because price has a part to play in its effect on production and consumption. But it is only a part, and there is no simple correlation. If the price of milk to farmers is reduced, it will no doubt have the effect of reducing supply in the long-term, but in the short and medium-term it might, as I said earlier, increase production unless other measures are taken, and that is the difficulty.

So will it work, paying people to go out of production? Will people accept redundancy pay? Farmers usually abandon an activity only if they can find another one that is equally remunerative. Beef does not pay as well as milk, arable may not be suitable, non-farming occupations are very frequently not available and the most significant inhibition, anyway, is that farmers are likely to be as dogged as, say, skilled workers or miners in wishing to stick to the job they know and the way of life they were born to. So it is not as easy to bribe someone out of his occupation as it may seem.

So whatever virtues the Commission's proposals may appear to have, we can be sure that they will not bring about change very quickly, and one of the criticisms we make in the Report is that they do not appear to have produced much evidence to show why they think that their proposals will be effective. We only hope that they will be. What one surely must do, though, is to restrict the liability of the taxpayer for financing a continuing surplus and the question is how.

The idea of my noble friend Lord Walston is that, instead of expecting lower prices to do the trick which they probably will not, anyway, in the short term, or introducing quotas which are very difficult to organise and administer, the Commission should organise a standard quantity to which intervention applies, preferably, he suggests, 5 per cent. below the present level of supply into intervention—initially, anyway. If possible, this quantity should apply only to those who rely on intervention, and not to those who can sell 100 per cent. liquid, or who can turn it into high quality cheese which sells at a profitable price.

I also agree with him when he says that the problem of agriculture as a whole, and milk production in particular, is not a simple one of too many cows and too much milk, but of too many people. Their standard of living can be improved—and this is what the CAP sets out to do—only by either their receiving higher prices, which is bad for the consumer, or producing more, but there is already too much, or having fewer producers so that each gets a larger share of the total. So it is a social problem. Therefore, the Commission's policy must be directed towards providing alternative jobs, such as by rural industrialisation, employment in tourism and conservation, and retraining generally for a different kind of life.

I know that my last remarks rather impinge upon the subject of the next debate, and these recommendations come under regional rather than agricultural policy, so that the CAP and regional policies must be co-ordinated accordingly. Although I am trespassing on the subject of the next debate, the Committee decided—rightly, in my view—that the two subjects, one specific and the other more general, should be debated separately and I hope I have not spoken for too long for this time of the night and that I have left much more for other noble Lords to say. I beg to move.

Moved, That this House takes note of the recent proposals of the European Commission for the Dairy Sector (R/1734/76 and R/1742/76), and of the Fifty-sixth Report of the European Communities Committee on those proposals.—( Lord Raglan.)

10.25 p.m.

My Lords, we are most grateful to the noble Lord, Lord Raglan, for having presented the Fifty- sixth Report on behalf of the noble Lord, Lord Walston. It is a very complicated matter and I think that the noble Lord has dealt with it extremely clearly. The report has been most helpful in providing a basis for what I am sure we all hope will be a very brief debate at this time of night.

From this side of the House may I say how very delighted we are to have among us the noble Lord, Lord Peart, with his great experience and knowledge of these matters. Although we may not always have agreed on policy, we on this side of the House are very well aware of the great contribution that he has made over the last two years to linking United Kingdom agriculture with Community policies. It has obviously not been an easy task and I know that he will have fulfilled that task to the best of his ability and with the best intentions regarding the good of British agriculture. Again I should like to say how very pleased we are to have the noble Lord in this House. I should also mention how very frightened I am to have to speak on this subject before such an expert.

May I also congratulate the noble Lord, Lord Raglan, on the report that was produced by his Committee. I appreciate that it was produced at very short notice. We ourselves have hardly had time to read it, so what is left out of my speech will be simply because we have not had time to go deeply enough into the matter. When we look at the report and the Commission documents we are only too well aware of how very complicated a matter it is to try to solve problems concerning dairy production in the nine Member States and the European Commission's proposals to make the industry more efficient and less costly to Member States. To be of benefit both to the farmer and to the consumer they seem to be trying to unite four completely separate and almost impossible matters into one solution. In fact, it seems to be an almost impossible task for two main reasons.

The first is that the facts do not seem to me to be all that clear. It may be because I have read the documents very quickly, but nowhere can I find au exact definition of what the 10 per cent. surplus over the production figure which is needed to meet the demands of the population in the Community really means. The second reason why I think it is very difficult for the Commission now to come to satisfactory proposals is that in recent years it has been spending about 1,000 mugs in order to increase dairy production by efficient schemes; so they have obviously got to take very bold decisions at this stage to stop what they have been doing—in certain directions, anyway—over the last few years and go either into reverse or in a completely different direction. That requires courage and powers of analysis. Also, it requires a certain foresight and sense of prophecy which I do not think anybody could ascribe even to the members of the Commission.

When one looks at the projections for future years I must say that I view them with grave misgivings because any projection, particularly a projection relating to the dairy industry, mutt have many imponderables. There is the very obvious one of the climate and also the world price of fertilisers and fluctuations in the exchange rate, to say nothing of more closely related effects such as the increased efficiency of farmers, the improvement in herds, the consequent increase in yields and at the same time an apparent decline in consumer demand for milk products.

This may be due to a variety of factors. It may be due to poor public relations, or to price resistance, or, indeed, to a whole concatenation of factors. It may even be that children in the Community do not like ice cream any more. It could be for all sorts of reasons which do not appear obvious on the face of them. It sounds a very stupid reason, but I do not know of any children nowadays who particularly like ice cream. They all seem to like sausages on sticks, in which case of course the consumption of ice cream goes down and consequently the demand for milk products in ice cream factories. I give this only as the kind of example which you have to take into account when you are trying to assess the future demand of the public.

The Commission propose to deal with the problem of surplus by a whole package deal. How far will the elements of this package go towards producing a solution and how many problems do we think will arise out of that solution or the solutions, and what effects will these packages have on the dairy industry? Only to mention the obvious again, the diversity in the size of farms and capital investment and in climate and in the pattern of local consumption have to be taken into account. It must be said again and again—and I think we allow the Press to get away too readily with the question of "mountains" and "lakes"—a surplus per se is no disadvantage. Who would not rather live in an area of high yield than in an area of scarcity? Who would not rather be able to buy high quality and to have plenty of choice than to have no choice and no food? I have always thought that the question of "mountains" has been grossly over-played and has done no service, either to the workers in the Community or to our own farmers.

In fact, if you analyse what the surplus means you probably find it means about one cup per week of milk per head of population, if that. It is only because it is calculated on the basis of 250 million people that it seems a large figure. If it was divided among the whole of the Community, I understand that it never meant more than about 10 days' stock for the whole of the Community. Possibly the noble Lord might like to confirm that. I have not got the exact figures, but I think that is roughly the kind of figure it is. I say again that the Press has done no service, either to the Government or to the Community, or to the former Government, on this particular aspect.

One of the facts that we are gradually coming to live with—and I think this is again part of the problem—is that in a shortage prices go up. I think this was a sort of Keynesian theory but the other leg of the theory never seems to happen nowadays, and when there is a surplus prices do not seem to go down. In fact, the law of gravity in relation to prices no longer operates. So how do we reconcile the security of the dairy farmer, encourage him to produce sufficient and at the same time ensure him a fair return and reasonable and realistic prices to the consumer? This is the problem that the Commission are now faced with, and how far do the proposals of the Commission meet these criteria and go some way towards finding solutions?

As the noble Lord, Lord Raglan, has so rightly pointed out, there is a whole list of proposals in the action programme for the milk industry produced by the Commission and mentioned in the 1956 report. They show the results of increased efficiency and at the same time in the following paragraphs there is also seen to be a decline in demand. It is said that the Commission believe that butter consumption has declined because of unfavourable prices—the price ratio of butter to margarine. Is that really correct? I do not believe that the answer is so simple. It is due to a variety of factors, some of which I have already outlined, and I do not believe that the solution by the Commission, to put a tax on vegetable oils in order to raise the price of margarine and lower the ratio of the price difference, will in fact be successful. On the contrary, I think it will be detrimental to the general price of food throughout the country. In my opinion it would also have a deleterious effect on the trading arrangements which we have with third countries who export oils to the Community.

Another point which I think has not been dealt with sufficiently in any of the reports that I have seen on the question of dairy products has been the question of the effect of fats on health. I must say I was somewhat surprised in what one can only take to be a "plug" for a very famous firm which produces margarine, to read that from the vitamin point of view, margarine is certainly a more nutritious food than butter.

All these conclusions on page xiv of the report are dubious conclusions, very much open to doubt. I personally would have rather not seen them contained in an official report. It may be because, again, I have read them rather quickly, but I am not quite sure who is responsible for the particular answers on margarine and butter in xiv. Perhaps when the noble Lord winds up, he will say where these figures come from, because I was reading Which?, known, I am sure, to all noble Lords, which goes into the question of the benefits of foods which contain fat. The September 1976 copy of Which?, says that the foods we need not worry about include skimmed milk, cottage cheese and low-fat yoghurt, hut the foods of which we should be careful include hard margarine as well as butter and cream. Therefore I think the appendix may be somewhat misleading on this.

I do not pretend in any way to be a dietician, but it is obvious from the report of Which? that this is a controversial matter and is not one on which any definite factual statement can be upheld. Obviously people have opinions, and there can be certain scientific facts connected with margarine and butter, but I do not think the value of these foods to a human being can be so categorically stated as in the report.

My Lords, the other matters I should like to touch on are the further proposals that the Commission has made. I particularly want to mention the question of the non-marketing of milk and the conversion premium. With regard to that question, I think this is a very good answer. The only point I should like to make—and I hope the Government will take this up and support other Member States who may feel the same way—is that the conversion premium should not be denied to small farmers. Again, I admit that read the document very quickly, but as I read it I understood the conversion premium was to be given only to farmers who had a minimum number of cows, whereas the non-marketing premium would be given to a farmer with any size of herd.

Many small farmers rely on natural fertiliser for their farms. They also would have the problem of haymaking and disposal of hay if they were forced to sell or slaughter their cows. It is an unreasonable condition to expect a very small farmer to slaughter his cows and not be able to have a premium to convert his cattle for beef during his own period of farming. While I think it would last for a very short time, I think it is an unreasonable request or condition to impose on small farmers.

I say this with particular knowledge, and perhaps I should declare an interest, in that although I do not keep cows I have a small farm in Italy. My next-door neighbours keep cows; each farmer has three cows. They rely on their cows to provide natural fertiliser for their vines. If they were made to sell these cows, they would have to buy chemical fertiliser, which is expensive. They run on a low margin of profit. They would have to try to dispose of their hay as best they could, probably burn it, and I think it would upset the whole balance of the way these small farms are run.

I agree with the general principle that these farms should probably in the end be amalgamated so that there is a much larger farm using chemical fertilisers; but I ask that some consideration be given to the existing small farmer that his whole way of life, the whole process of family working, with the wife cutting grass, feeding cows, and so on, should not be disrupted at this stage, because I think it would have considerable effects on the social as well as the economic life of the small farm. I have dealt also with the question of the tax on oils, which we do not consider would be helpful. We would very much rather see the price of butter go down than the price of margarine rise.

I have kept your Lordships rather a long time, but there is just one point I should like to make because I have not heard the noble Lord mention it, and I think it is absolutely vital to this question of skimmed milk powder. I have not seen anything about food aid and I think this is a very important aspect of the way the surplus of skimmed milk powder is to be dealt with. I very seldom look at television, but there was a very good television documentary recently about a sort of bidonville outside Lima, in Peru. The only thing they needed was skimmed milk powder and I wondered, knowing of the mountain in Brussels, how it was that the two had never been connected.

When I made inquiries I was told that skimmed milk powder was of course available to anybody, but they had to ask for it. It seems to me this is something the Government could do to ensure that the Embassies of the nine Member States of the European Community, wherever they may be and particularly in LDCs, should have the task of informing Ministries of Agriculture or their equivalent in some of these countries that the skimmed milk powder is available not only for human consumption but to be used for animal feeding stuffs in order to develop local agriculture. This. I am sure, all sides of the House will agree is one of the best policies in order to raise the standard of living of the lesss developed countries. This, I think, is a point which should be made, particularly with regard to the skimmed milk powder.

The final point I should like to make—and I very much hope the Government will insist on this—is that before the surplus is disposed of in the most casual way it should be ensured that it goes at the lowest price to old-age pensioners, people on supplementary benefits, schools and hospitals. If there is a surplus I am quite certain that if the Commission use energy and imagination they can find the people who can use that surplus with benefit to their health and also to keeping and safeguarding the position of the farmer.

10.43 p.m.

My Lords, I, too, should very much like to welcome the noble Lord, Lord Peart, and say what a pleasure it is to be able to look at someone on the Front Bench opposite who knows a good deal about agriculture, because if I may say so the expertise is slightly weighted on this side.

The question before us is really the EEC's attitude to dairying and its effect on this country. I should like to start by restating the obvious case that this country should produce a great deal more milk and the Continent should produce a great deal less, because we milk raise properly, we need it, we import large quantities and we do it efficiently. I think we have the best climate for it. We can grow grass better than most places in Europe and, apart from the Dutch, I think we have more expertise than anyone else, including the Danes, whose farming I admire.

So when we look at the original aim of the EEC of producing the goods needed in the right place and by the people who are best at it, this country is the ideal place for supplying certainly the major part of our own needs and those of Europe. One can see this quite clearly from the price. So far as we can tell at the moment, milk is about 39p a gallon in the United Kingdom, while in France, Holland and Denmark it is 45p a gallon, in Germany it is 50p a gallon and in Italy it is 60p a gallon. The discrepancy is widening, and still we have not got a big squeal coming from the dairy farmers in this country, which normally means they are doing moderately well. I think this is the first point that we must look at when considering the proposals.

I think on the whole the proposals make the best of a bad job, and 1 think that is all you can say about them. To have a co-responsibility payment is just rubbish. The price must come down. To go about it round the back door because of the foolish attitude of some countries is a grave disservice to farmers in the long run. The one thing that is sure about any price guarantee—and steadying the price is essential for efficient farming—is that you cannot depart too far from supply and demand. I do not think the farmers of Europe really want high prices; they want to know where they are, and if prices have to be reduced because of over-supply they should know that they will be reduced only gradually, or not rise according to inflation. To put prices up to the farmers of Europe in a period of gross over-production is really enormously stupid, and certainly will do the farmers no good at the end of the day.

I entirely agree with the noble Baroness that the mountains are not mountains at all; they are molehills really. But any stupidity such as going on producing extra food when it is already in surplus over the amount you need for a carry-over and safety valve does reflect in the papers, quite rightly, and does turn the public against guaranteed prices for farmers and makes the system look silly. Other measures are quite reasonable. Suspension of aid to dairies is, of course, quite sensible in a condition of over-production. I think the point Lord Raglan made about a price reduction sometimes leading to increase in production of milk is perfectly true, because the farmer simply adds two or three cows in order to keep up his gross income. But combined with the measures to bribe or force farmers, whichever way you care to put it, out of milk and into something else, I think it is effective. We say in the report, and I think it is true, that the payment for getting out of milk was very effective in the wrong way in this country in forcing British farmers out of dairying and into beef. You must reduce the price in time of over-production, but you must also give incentives to get out of milk and into something else. In that way I think the policy could be very effective.

There are a number of ludicrous situations particularly the one of taking skimmed milk and drying it on very expensive machines, having taken it into the dairy to separate it, and then being unable to sell it. We had very sensible schemes in this country of encouraging the sale of skimmed milk in liquid form to pig farmers and other farmers, to feed to pig farmers and other farmers, to feed calves and so on; and it appears to me that if we were to give grants for separators on farms, keep the milk on the farm, or send it direct to another farm, it would be infinitely more sensible than using precious fuel drying it and making it into skimmed powder which you cannot sell. I think this is a system we should return to and encourage by means of grants.

There is no question at all that we must put a lot of propaganda over in Europe about the effectiveness of our milk marketing. Our sales in this country are high and rise from time to time, and they are based on service. There is no question also that our daily delivery service in this country is one of the ways we keep up supply and sale of milk, and I hope we shall never stop it. I hope they will adopt it in Europe and spend some money to promote the sale of liquid milk.

The requirement to put expensive skimmed milk powder into animal foods is, again, daft. What is the point of putting up the price of other animal foods and simply robbing Peter to pay Paul? There should be a direct reduction in the price so that manufacturers will want to put the stuff into other animal foods instead of soya bean meal, or whatever they are doing at the present time. The more you resort to artificial means and force the further you get from supply and demand, and the more trouble you get into.

I do not want to say much more. I think the report and the Committee's intentions will go some way to alleviate the problem. I think that the noble Lord, Lord Peart, as Minister of Agriculture, did a tremendous amount to try to force common sense on the Commission in some of their proposals. We have big problems here with inflation, so that we have to try to keep the price down to the consumer. But I think that the noble Lord's successor would appear to have even more work to do, because the Commission appears to be putting forward plans which will lead to more bureacracy and get away from common sense and the law of supply and demand. I trust that the new Minister will put the same energy into the into it as did his predecessor.

10.52 p.m.

My Lords, there can scarcely be a more complex, one might almost say more intractable topic than the Common Agricultural Policy. It is easy to criticise it; it is tar more difficult to construct a sensible alternative. The basic problem is how to integrate essentially different agricultural structures. Thus, to take one example, the average size of a dairy herd in Italy is five; at the other extreme the average size of a dairy herd in Scotland is 70. The average milk yield varies in the same way, with Holland at the top of the table, Eire at the bottom, and the United Kingdom coming third.

One of the clearest examples of this problem can be seen in connection with the proposed measures we are discussing this evening. This country is one of the Community's most successful milk producers, and it is the policy of Her Majesty's Government, as set out in the White Paper, to increase milk production within these shores. Indeed, we do not supply, as your Lordships know, all our own requirements for dairy products. But, what is more, we are the biggest outlet for the cheese and butter exports of the rest of the Community. Yet the Community has a large surplus of milk and we are part of the Community. With his long experience as a very successful Minister of Agriculture, I hope that my noble friend the Leader of the House will be able to reconcile this apparent conflict in the national and Community policies when he replies.

As my noble friend Lord Raglan explained, this package is designed to remedy the serious and persistent imbalance in the milk market. Like CAP as a whole, it is good in parts, though in my opinion the bad parts of the package undoubtedly outweigh the good. The most obvious is the fact that it has been put together without apparently taking any notice of consumer interest. The Commission seems to have been concerned only with the reduction of surplus dairy produce and to have been unduly influenced by the farming lobby. If the problem had been looked at from the consumer's point of view as well as that of the farmer, I am sure that a totally unacceptable tax on vegetable and marine oils and fats would never have been put forward.

There seems to be some doubt as to the size of the proposed levy. If, as some have suggested, it will be so small as to make no difference to the retail price of margarine, why impose the tax at all? Should the levy be so large as to have a noticeable effect on price levels, then I suggest that that runs directly contrary to the interests of the consumer, especially the lower-paid consumer. There is, in my opinion, no reason why the price differential between margarine and butter should be artificially distorted in this way. On the basis of long experience as a retailer, I will explain it simply. Foods compete with each other, especially butter and margarine. If the margin between the two decreases, more butter is sold. If it increases, more margarine is sold.

By imposing this levy, the Commission hopes to increase the price of margarine and thus increase the consumption of butter. It is known that there is a correlation between the amount of fat consumed and the incidence of coronary heart disease. What is not certain, however, is the effect of animal fats which in butter and hard margarine are rich. Nevertheless, many people believe that soft margarine, which contains up to 50 per cent. polyunsaturated fats, is better for them. There can be no justification, I suggest, for this belief being penalised by artificially increasing the price of margarine.

Let us ask Brussels to face up to reality. The price of milk in the rest of the Community is too high. The noble Lord, Lord Mackie of Benshie, quoted some figures; mine are slightly different at the retail level. In January of this year a pint of milk cost 11·1p in Germany, 10·5p in Denmark, lop in France and only 8·5p in this country.

My Lords, would it not depend on which day the calculation was made, according to the exchange rate on the day?

It would indeed, my Lords. Speaking from memory, I think the exchange rate was higher in January than today, but those were the only figures available. I think, making all allowances for that, that there is a wide differential which is borne out by the figures of the noble Lord, Lord Mackie. Yet, faced with this disparity, the Commission has not taken the obvious course of reducing the price to the consumer. Instead, it has chosen a weird alternative, the—in the language of Brussels—so called "co-responsibility" levy. In effect, this is a price cut to the producer which does not benefit the consumer. The Commission has not produced any evidence to show what effect this roundabout measure will have.

Indeed, as the Committee report states, if it is set between 2 per cent. and 5 per cent., it may have very little effect, as has already been stated by several speakers. Many farmers may simply increase their herds and thus their production in order to compensate for the lower price they will receive for their milk. Far more sensible, though admittedly more complicated from an administrative point of view, would be a guarantee to producers of a given price for only a certain amount of milk. If they produced more, a lower price would be paid on the excess. That, I understand, is the suggestion of my noble friend Lord Walston, the cause of whose absence from the debate tonight we all regret.

The best solution to this very real problem would be to increase liquid milk consumption in the rest of the market, both by lowering the retail price and by taking active steps to promote the consumption of the product in its liquid form. The success and efficiency of the British dairy industry is based on the high liquid consumption of milk in this country. Some 60 per cent. of all the milk produced here goes for liquid consumption.

My Lords, I stand corrected by my chairman. I had thought that the figure was higher, but the figure for the rest of the Community as a whole—and I hope that this is right—is a mere 15 per cent. Much credit for the level here must be given to the excellent promotional work undertaken by the Milk Marketing Board, which is financed, as many of your Lordships will know, by a levy on distributors as well as producers. It is this pattern that we must encourage in the rest of Europe.

There has been a full programme of debates today and I do not want to take up too much time outlining those of the Commission's proposals that are designed to encourage farmers to stop marketing milk or to convert to beef production. I only wish to say that there has been no estimate of their total effect. I wonder whether the reduced production that will result from this measure will not be more than offset by the trend which is apparent throughout the Community towards greater efficiency and a higher milk yield per cow.

In conclusion, I doubt the effectiveness of these measures. Some require time before we can judge how successful they will be. Others—in particular the levy on vegetable and marine oils and fat—should be firmly resisted. Most important of all, I hope that our new Minister will go to Brussels to propose and fight for a far simpler remedy than that which the Commission has put forward; namely, a reduction in consumer prices and large-scale promotion, by every means possible, of the consumption of liquid milk.

11.5 p.m.

My Lords, I think that this debate has shown that there is nothing like milk for throwing any Minister of Agriculture into a panic. That is what has happened over the greater part of the EEC. I am glad to say that I think this country—and all credit to the last Minister of Agriculture—is an exception. This so-called surplus of skimmed milk powder has rushed the Commission into making very strange proposals described as the "introduction of a premium system for the non-marketing of milk and milk products and for the conversion of dairy cow herds ". What extraordinary jargon! Taking it out of the small producer is the line they propose to follow—and little advantage to the consumer, as the noble Lord, Lord Sainsbury, has pointed out.

The noble Lord, Lord Raglan, suggested—and I do not want to do him an injustice—at the beginning of his speech that herds of 10 cows or fewer produced something like 25 per cent. of the milk in the Community. I checked that figure from such papers as I have with me and it seems that of the total cows in the Community in herds of under 10 are only 7·7 per cent. of the total. Therefore, if those figures are correct, I cannot see that the production from 7·7 per cent. of the total cows in the Community should be held to be such a great threat to the stability of the market.

My Lords, the proposals that the Commission make reveal the odd and changing attitude of politicians towards small farmers over the years. Sometimes, they all press for heavy subsidies for small farmers and new settlement schemes—and 19th century Germany is the prime example of where that policy was followed for decades—then the pendulum swings and the politicians and their advisers say that small farmers are inefficient and are too numerous and that it ought to be a main purpose of it all to see their numbers are reduced and: "Let us get rid of them because the level of support for agriculture, if it has to take account of the costs of the small as well as the big, is so heavy. Let us see, therefore, this large number of small farmers reduced."

There is never any certain agreement about the reaction of small farmers to price changes—and, in particular, for milk. Some may say that the reduction in the price of milk encourages the small man to go out of milk. Others say that he at once seeks to buy another cow or two in order to maintain his income. Probably some react in one way and others in the opposite way, and there is hence no certainty as to what the general effect would be. But, in any case, the number of small farmers in all countries is going down because it is, understandably, within the spirit of the times that people should dislike the burden of milking cows twice a day for seven days a week. The older generation accepted that; the younger generation accept it much less readily.

What do the Commission propose? I only want to speak about one of their proposals because I do not want to take up much time. I want to speak about the imposition of a co-responsibility levy on all milk production. That is a strange way of getting round the political difficulties associated with a straight price decrease. I would ask noble Lords to note that an increase in milk production in any country today is most likely to come from the bigger farmers, and is not likely to come from the smaller man whose numbers are decreasing and who has not the capital to achieve the same expansion as many bigger men. I must declare my interest here: I am at the larger end of milk producers but I am not somebody who would find it easy to double his numbers, although there are many who could do it.

Further, putting this pressure on the small farmers, which the Commission propose to do, is not attractive politics to me; nor do I think it is wise socially to harass these men and so drive them to live in the towns. The noble Lord, Lord Raglan, assumed rather too easily that alternative employment would be found in rural surroundings. In my experience, when small farmers leave their holdings, for whatever reason, they are much more likely to drift into the towns.

Various possibilities and various ways have been considered by the Commission. to deal with the surplus. I should like to suggest a simpler way, a cheaper way, a fairer way socially and perhaps a more effective way of operating the co-responsibility levy would be to start it at the production in excess of the estimated yield of, say, 10 cows, say, in round figures, 10,000 gallons. That would apply to all producers, large as well as small. This would be something like the personal allowances under our present income tax code. If on all milk above that certain figure there were charged the levy, there would then be the price reduction and a check at the end of the scale where the expansion was most likely to come. If you wanted to make it bite even harder, you could calculate that levy at a higher rate still the top end of the scale. I submit that would be a great simplification in administration.

To complete the picture, I hope that our Minister of Agriculture will impress on his colleagues in Brussels that sales promotion, on the same lines as has been seen in this country, is essential. Our Milk Marketing Board has achieved great success in this field over the years and has gained experience which others could well copy.

It is not always that we can say today that Britain sets an example which we can urge on other countries to copy. But so far as the promotion of the sale of liquid milk is concerned, we have set an example in this country which none can rival, and from this House I am sure we can ask the Minister to press on his colleagues that others should not only note what we have done, but follow the example and follow it quickly.

11.15 p.m.

My Lords, my noble friend on the Front Bench, Lord Peart, will be conscious now of the feelings of the whole House towards him. I simply want to add my words of welcome and of thanks to him for the great services he has paid to agriculture in the past. They are greatly appreciated. It has been an arduous task; I only hope that his job in this House will prove less exacting, if that is possible.

I have discarded the speech I was going to make because of the lateness of the hour. I am very conscious of the fact that this is the second time I have addressed your Lordships today and I do not want to outstay my welcome, but I must thank my noble friend Lord Raglan for presenting this report and explaining it so clearly.

I shall merely mention one or two points where I have reservations about the Commission's proposals. At the outset, may I say that while one appreciates the Commission's problems relating to the over-production of milk on the Continent, the fact remains, as the report says in paragraph 7:
" … the proposals raise a classic dilemma in that on the one hand it is broadly in the national interest that 'surplus' milk production in the Community should be reduced and the CAP costs lowered, while on the other hand the Government have at present an extension plan for the British dairy industry".
Those two concepts seem to be incompatible.

I would say, however, that the production of milk in this country is in balance, and I am a little concerned about the effect of the proposals on the possibility of a milk shortage occurring during the winter months. If one is to ensure an adequate supply in the winter, one must accept that there has to be a surplus in the summer. I can only express appreciation of the work done by the Milk Marketing Board, not only in dealing with the balance properly, but in the propaganda work they have done to increase our milk sales. I agree, as has been said, that the Commission might well take inspiration from our own Milk Marketing Board, because they have been successful, as their team of experts who came here a short time ago know for themselves after visiting the Board.

I do not propose to reiterate the proposals regarding incentives for farmers to get out of milk production by way of the non-delivery premiums and the conversion premiums. My reservation is that it is very difficult to assess what the take-up will mean and, in particular, what it will mean in this country. For best or worst, whichever way you look at it, it could result in a quite substantial drop.

In his evidence to the Committee, Mr. Roland Williams, chief economist to the Milk Marketing Board, said—and I will paraphrase to save time—that we have in this country just over 50 per cent. of milk producers in the category which would benefit from a non-marketing premium. He also said that those 50 per cent. of producers have something like 20 per cent. of the cow population. He added that the conversion premium would cover about 40 per cent. of the producers, and they supply about 18 per cent. of the milk supply of this country. He added:
"We do believe that these premium schemes would give a very substantial incentive to producers in these categories at least to give up milk production."
As I have just mentioned, what worries me is that although it is expected that because of increased efficiency in the industry the increase in milk yield will continue, and while we accept that in the long term the remaining larger farmers will increase the size of their herds, there is bound to be a time lag before this takes place. In connection with the possibility of a milk shortage in the winter, I personally put a question to Mr. Roland Williams, because I wanted an answer to a specific question. I asked him whether we would have difficulty in meeting our winter milk supply, and he replied;
"I think we would have had difficulty in the last year or so with milk supplies in the winter, having regard to this enormous reduction in the cow population, had it not coincided in the last two years with an enormous surge in yield improvement. We have never experienced a yield improvement of the order of last year and the beginning of this summer, and had that not happened at the same time as the cow population was decreasing we would have had difficulty."
There is the added point that the changeover to more beef production on the Continent could add to that beef mountain about which we hear so much. That is my first worry, and my first point.

Secondly, I must confess that I am astonished at the proposal of the Commission, which apparently accepts that because the price of butter is likely to rise the price of margarine should be allowed to increase, too, and indeed should be forced up. It seems to me that this is contrary to the interests of the producer, and is also contrary to the natural operation of the law of supply and demand. It is odd, to my way of thinking, because the consumer will have to fork out more in a situation where in this country, and in the rest of Europe, inflation is already a major preoccupation.

I also find it difficult to accept the proposal that developing countries should have their oil exports to us taxed. It seems to me, despite the proposal that the proceeds from the tax should be put towards increasing international aid, that one must accept that the developing countries, much as they require aid, require trade much more, and I am quite sure that to limit their trading possibilities in this connection is wrong.

Finally, I should like to repeat what has already been said, that the co-responsibility levy is simply an attempt to introduce an indirect price cut, because, as has been made clear by the Commission, the Council of Ministers will not accept reductions in milk prices. One can understand the problem, but the direct way is not possible and this indirect way in no way benefits the consumer. That is a point which I thought should be made clear. The temptation offered to farmers to get out of milk production by a levy of between 2 per cent. and 5 per cent. would not have any significant effect on milk production, and I feel that such a disguised price cut can in no way be recommended, because anything that is disguised is wrong and the consumer cannot benefit. Therefore, it is clear that I personally concur with the general opinion of your Lordships' Committee that they,
"… fear that the Commission's proposals would not be adequate for their intended purpose, and … that to tax imported oils and fats would be the wrong approach".
I think it is a very wrong approach.

In conclusion, I regret that nothing was said in our report—and I should have mentioned this myself—about the suggestion by the Commission that some of the surplus milk could be taken up by developing a school milk scheme. This valuable and nutritious liquid could be passed on to children who might need it.

Also I concur with what the noble Baroness opposite said, that consideration should be given to the disposal of this mountain of skimmed milk to those parts of the world where there is great need, where starvation is rife and where the delivery of quantities of this product, which is simply lying around doing nothing, would be of great help.

I have disposed of my original speech because of the late hour. I wanted, however, to join those who have already commented on this report, and I think it is quite clear that I concur with practically everything that has been said.

11.26 p.m.

My Lords, this debate has shown that there were varying views in our Committee about these proposals. My own attitude is governed by my support for the Government White Paper, entitled Food from Our Own Resources, the general objective of which I believe to be correct. It is that since at the present time the cost of importing dairy products is running at the rate of something in the region of £500 million a year, mainly on butter and cheese, we should expand our own milk production to help to make good at least part of this deficit. Nobody was more forceful in advocating this policy up and down the country than the noble Lord, Lord Peart, in his capacity as Minister and I believe he was quite right to do so.

The noble Lord will, of course, agree that we ought to continue to import butter from New Zealand, since this is an import which was arranged under the terms of the Treaty of Accession?

I am not against some imports. All I was suggesting was that we should not be so wholly dependent upon imports as we are at present. The other reason is that given by the noble Lord, Lord Mackie of Benshie, the basis of which is that we in this country are better suited to producing milk and milk products than many other countries in the Community, just as they are better suited to producing certain other products, perhaps sugar beet or potatoes, than are we.

The trouble with the Brussels proposal for reducing the milk surplus in the Community as a whole is that, on the face of it, it runs counter to our own desire for self-sufficiency, but this contradiction is more apparent than real if the Government are prepared to take the necessary measures which I will come to later. It has been suggested that it would have been simpler if the Commission had reduced the price of milk instead of coming up with such a complicated package. I am not sure that this is right. There is hound to be a great deal of guesswork here, but a straight cut in the price of milk could, as has been suggested, have encouraged producers to maintain their incomes by keeping additional cows, and if it did that it would be self-defeating. Certainly in their evidence to us the Milk Marketing Board were emphatic that it would have the effect of reducing the number of milk producers. After all, that is what is required, looking at it from a Community point of view.

What, then, of our own position? My own feelings are somewhat mixed. I do not quarrel with the co-responsibility levy, provided that the Commission make proper use of the proceeds to increase the consumption of milk and milk products. A number of speakers have already made that point, so I will not go on with it. But, certainly, they have a lot to learn from our own Milk Marketing Board, and I hope they will learn. We must certainly go on pressing them in Brussels to say exactly what they are going to do in this respect.

I am slightly dubious about the beef conversion scheme and the possible overproduction of beef. I hesitate to use the word "mountain" after the strictures of the noble Baroness, Lady Elles, but I think there might be over-production of beef as there has been in the past. Likewise I am uneasy about the cessation of capital grants. This is an aspect which I do not think has been mentioned so far. The cost of modernising buildings and equipment in the dairy sector is becoming truly prohibitive in the inflationary era in which we live, and I do not see how any expansion can take place—and I personally believe that we need to expand in this country—without Government assistance.

One encouraging feature which should be noted by noble Lords is that grants will still be available to the non-intensive producer; that is, the producer who produces 80 per cent. of his fodder and does not keep more than one cow per 1·3 hectares. This applies even if that producer is not in a less favoured area. There are many mixed farms in this country which come in this category and which should continue to benefit from grant aid, and from the point of view of the structural reform of the CAP, which of course is the subject of the next debate, I believe that this encouragement of farm self-sufficiency in the Community is a step in the right direction. Where I am afraid the cut will bite most is in investment in milk processing factories, but this is something which we may have to accept.

I return finally to the question of the dilemma posed in paragraph 7 of the report and the possible contradiction which I mentioned earlier. These measures, if they are implemented, will obviously have a very serious effect on the dairy industry in this country; but I believe these adverse effects on the British farmer, especially the effect of the non-delivery and conversion premium and the co-responsibility levy, can be largely, if not wholly, counteracted by a Government decision at least partially to devalue the Green Pound. This is, after all, an option which is not open to the other countries of the Nine, and in a sense we get the best of both worlds, because we can maintain the support for our dairy industry at its present level, whereas on the Continent the price of milk will be reduced, and thus we should become more in balance.

The decision to devalue the Green Pound is in any case overdue if our farmers are to be allowed to compete on equal terms with the farmers in the Community, and yet that surely is the objective of the CAP, and I believe it is high time that it was the Government's objective, also. If this package is introduced without an adjustment of this kind, then the outlook for the British dairy industry will be bleak indeed.

11.35 p.m.

My Lords, may I say how glad I am that so soon after joining this House I should have the privilege of replying for the Government to a debate on certain aspects of a subject, agriculture, with which I have had more than a passing acquaintance in another place. May I say how kind noble Lords and Baronesses have been to me, and may I thank them for what they have said. I am sure we are all indebted to the noble Lord, Lord Raglan, for the Motion which has enabled us to have such an interesting debate. I know it is late at night, and I pay tribute to the endurance and, indeed, the interest and enthusiasm of noble Lords and noble Baronesses on a very important matter which, in the circumstances, I wish had been debated at an earlier hour. On looking at the clock, it is almost like going to the European Commission again. I hope we shall finish a little earlier than they do on many occasions.

My Lords, we thank the noble Lord, Lord Raglan, for the Motion and I pay tribute to the way he has moved it. It is only right we should go back one further step in the chain of events and pay tribute to the European Communities Committee of the House, whose work and vigilance have been a means by which these proposals from the Commission of the EEC have been brought to our notice as needing further consideration by the House. In the other place, I used to go to the Scrutiny Committee quite often on matters affecting the Community and agricultural policy. I never regretted being cross-examined by my colleagues. I think it is right that this tradition should hold here in your Lordships' House, and in the Committee concerned. Therefore, we are indebted to the Committee for their interesting and thorough report, their Fifty-Sixth, on the dairy proposals of the Commission, just published.

My Lords, your Lordships have raised a number of points. I intended first to outline the views of the Government, but I should refer to some of the important points not covered specifically by the report. May I say to the noble Baroness, Lady Elles, that I agree with her so much about the issue of surplus and scarcity. In another place when I have been attacked by Left-Wing critics of the Community—and I used to be a critic myself, although never a Left-Wing critic—and when I have dealt with some of their arguments, I have always said they should turn their attention to some authoritarian régimes who have tried to develop their agriculture and failed, and have had to be assisted by the Western World, including the United States. The noble Baroness is quite right to put this in its proper perspective. I would rather deal with surpluses than scarcity. I am glad she stressed that.

I was interested in the remarks of the noble Baroness with regard to Italy. I once did a special survey many years ago, as chairman of the Commission, which examined Italian agriculture and farm structure. Mistakes were made in the régime after the war by destroying some of the larger estates; there was too much fragmentation. That is why I later became a supporter of amalgamation. I was going to refer to this on a later occasion. I found the remarks of the noble Baroness most interesting.

The noble Lord, Lord Mackie of Benshie, quite rightly talked about the importance of the law of supply and demand. Obviously, as a Liberal, and I assume a disciple of Adam Smith, and economists of that ilk, it was only natural he should state this, and I think he is right. It is odd that I should say so, but I think he had a point here. He said, quite rightly, that we must produce more, and that the other countries on the Continent and the Community should produce less.

The noble Lord paid a tribute to the efficiency of our industry and also made a reference to the importance of our Milk Marketing Board, and I agree with him here. Not so long ago at the Dairy Trade Federation Conferences at Stratfordon-Avon I made a statement on that, that we must keep our essential powers in our marketing boards. They have been successful and I believe they should be adopted in Europe. Here, no doubt, is a matter of controversy which does not come in the report we are dealing with tonight, but I am glad he raised it.

Again, the noble Lord, Lord Sainsbury, also referred to many matters and I will deal with some of them when I discuss the report. He was quite right to highlight our liquid consumption, the success of our dairy industry, and of course he mentioned farm structure. If I may give one figure, sonic 63 per cent. of dairy herds in the Nine are herds of nine cows or less. So there is a different problem from that which we face in our own country. He was quite right to highlight the role there of the small farmer and the differences, and also the importance of the consumer. We must never forget this. Naturally I am anxious to stimulate production, but we must consume and if we do not have a proper balance both suffer.

The noble Lord, Lord Collison, also defended the Milk Marketing Board. I am glad that he stressed this because he, too, has had long experience in the industry. I am glad the noble Lord, Lord Vernon, mentioned the Government White Paper Food from our own Resources. I have often been criticised about this but I believe the strategy it outlines is right. I know we have had setbacks. I know that at one period we had retrenchment in our own industry. I know that the drought also has considerably affected our industry. But I believe the policy is right, and right from the point of view of the balance of payments as well.

I was glad also that the noble Baroness, Lady Elles, interrupted and stressed the point that we also import from New Zealand. As the noble Baroness will know, I achieved a success here and I am glad that it is not in any way incompatible with the need to push ahead with our own production. There will inevitably be imports from other countries, particularly from our traditional suppliers like New Zealand.

I should like to outline very quickly the Government's views on the Commission proposals which are the subject of our debate. I could have been sidetracked on many of the issues that have been raised earlier, and I mentioned some of them. The Commission has presented us with its analysis of the problems in the milk sector, and has put forward a series of proposals to deal with them. Essentially, the Commission assesses that the trend is for the Community to produce 10 per cent. more milk than is required. Already the cost of financing surplus disposal is very great and, without action to overcome these problems, the situation could deteriorate. We are convinced that if these problems are to be overcome the fundamental cause will have to be faced squarely. This is that prices—and the noble Lord, Lord Mackie mentioned this directly—have for far too long been set at levels which have generated a volume of production which consumers will not purchase at the prices laid down.

Therefore it must be accepted that the only effective solution is restraint on the intervention prices which are fixed each year. We accept, however, that to deal with the problems facing us now a combination of measures is necessary. But unless such measures are applied in the context of a firm prices policy they will have only a temporary effect and will not succeed in overcoming the underlying cause of the problem.

I am sure the House would wish to hear in a little more detail the Government's views on the individual proposals that go to make up the Commission's package for the dairy sector. On non-delivery premia, we take the view that a case can be made out for a scheme which provides some assistance to producers to give up milk production. I am thinking now of the Community as a whole. There are, however, two points I should like to make. First, it is important that this scheme should not be seen as a substitute for effective action on producers' returns. On the contrary, we believe this type of scheme should be supplementary to a firm policy in relation to producers' returns. In any other context, it would at best only produce a temporary dip in the upward trend of milk production. Secondly, we need to look very carefully at the scope of the scheme. If its scope is too wide, there could be a very serious risk of dissipating the Community Fund and Member States' funds. Our effort should, surely, be concentrated on providing assistance to the smallest milk producers, since it is these who might be most affected by firm action on intervention on prices.

We therefore take the view that the upper limit of 150,000 kg, which is really up to a 35-cow herd, proposed by the Commission is very much too high, and in the discussions that have been taking place in Brussels we have made it clear that we should like to see this reduced, As regards conversion to beef, we see dangers in giving additional stimulus to beef production; the institutional prices in the beef sector are already more than sufficient to bring forward the beef we need.

Turning to the proposed ban on investment aids, the House will not be surprised to learn that the Government do not support a blanket ban of the kind suggested. I believe it makes no economic sense to argue that, because there is a milk surplus in the Community, aids which are specifically aimed at improving the efficiency of milk production should be ended. I have said this in another place; I have said it at meetings outside; I have said it in the Community. On the contrary, it is surely particularly important now to ensure that we are doing everything possible to encourage greater efficiency on viable dairy farms, so as to reduce the social problems which confront us.

The proposed co-responsibility levy has attracted a good deal of attention and debate in the farming and dairy industries. In a previous capacity, when I was Minister, I made it clear that I was strongly in favour of arrangements to ensure that milk producers shared the financial responsibility for the milk surplus, and my right honourable friend the Minister of Agriculture takes the same view. This responsibility would, of course, be borne if the Community were to accept restraint on intervention prices, and while the present proposal may also achieve this, it does not directly benefit consumers. Therefore, it will need to be considered very carefully.

We need to be sure that Member States accept that a co-responsibility levy would not be eroded by subsequent action on intervention prices. In other words, we need to be sure that these arrangements would contribute effectively to the overriding need to secure a better balance in the market; the most pressing requirement being to reduce the incentive to dairy farmers in the Community to produce milk.

The Commission has come forward with a number of proposals aimed at enlarging the market for milk and milk products. We are not opposed to the principle of assisting the dairy sector's efforts in the area of market research and product development. Nor would we be opposed in principle to assisting programmes to encourage milk consumption in schools, or to facilitating increased use of liquid skimmed milk in stock feeding. But in all these cases it will be very important to ensure that the details of the arrangements are as cost effective as possible.

However, the revival of the proposal for the exclusive use of milk products in certain foods falls into a very different category. This proposal would limit consumers' choice in a quite unacceptable way. It would also add to manufacturers costs, could cause redundancies and put investments at risk in certain areas, and could reduce sales of certain types of product which are at present made from a combination of milk and non-milk fats and proteins. This proposal has caused great difficulty in the past, and, in the Government's view, it would be wiser not to proceed with it.

Finally, a word about what is, perhaps, the most controversial of all the measures in the Commission's package—the proposed levy on vegetable and marine oils and fats. This proposal presents enormous problems. It has of course already provoked a very strong reaction from the United States and other producing countries. The less developed countries are naturally extremely perturbed by the proposal, and they will in no way be appeased. I know noble Lords have referred to this. Again, the less developed countries are perturbed, but so are we all here, and I believe that this is something which we have to really criticise and attack.

In any case, we do not see any logic in the Commission's argument for this proposal, and it would, in our view, have undesirable effects within the Community by raising food prices and also prices of certain industrial products which use vegetable oils. When the Commission's package was discussed in the Council at the end of July, I made it clear in my previous capacity that the Government are totally opposed to the suggested tax as part of any package of measures to deal with Community milk surpluses.

My Lords, we have had a very interesting and worthwhile debate this evening on the Commission's proposals for correcting the imbalance in the dairy sector. At the present time specific proposals in the form of draft regulations on the various elements of the Action Programme have not been put to the Council of Ministers by the Commission. The one exception is the proposed non-marketing and conversion premium, for which a draft regulation has appeared and been studied by the European Communities Committee of this House (the Scrutiny Committee). Discussion of the Action Programme will continue in the Council, and therefore it has been helpful to the Government to have had the benefit of the views of noble Lords, with their wide experience of agricultural matters, who have spoken in this debate.

May I say to my noble friend Lord Inglewood—I say "my friend" because, as I said at an earlier Question period, he is my neighbour and was in the Ministry of Agriculture—I agree with so much of what he said about the jargon in Brussels. On the other hand, we have to learn that jargon. We have to play our part there. He dealt specifically with surpluses. He, too, argued about not panicking, and I think his views are endorsed by the noble Lord, Lord Vernon. I think he is quite right when he talks about the inefficiency of small farmers. On the other hand, he recognised their place. But I have believed always that inevitably there may have to be some measure of amalgamation, and indeed in my own Act of Parliament we had an amalgamation scheme which was not attacked by the Opposition.

My Lords, would the noble Lord allow me just to make the point clear? I never said that small farmers were inefficient; I said they were frequently represented as being inefficient. But, like small and large, some are efficient and some are not.

My Lords, I am not talking about British farming now, I am talking about what I have seen in the Community. I think some of them are inefficient, and this is one of the great problems. Indeed, this has always been a problem with the price fixing—having common standards, and the need to relate prices to the efficient farm. However, I will not elaborate too much on that.

I thought it might be helpful and useful to the House if I said a little about the drought, because there has been an announcement in Luxembourg which has a bearing on this. I mentioned it to the noble Lord, Lord Raglan, so I hope I shall be forgiven, but I felt that I ought to put it on the record, and I thought that noble Lords and noble Baronesses would like to hear about it. I have referred to the effects recently of the drought on the farming industry.

The drought has, I know, come as a severe blow to the industry. Noble Lords may recall that, in the earlier stages of the drought, I went for myself to look at its impact on farming in different parts of the country. Yields of all the main arable crops have been seriously reduced because of the drought and there was virtually no grass growth from midsummer until September over most of England and Wales and in some parts of Scotland and Northern Ireland. Rain in the last few weeks has helped some sectors but came too late to be of general benefit.

Noble Lords may also remember that on 27th August I announced two modifications to the brucellosis eradication arrangements designed to be of help to farmers in some drought-affected areas. My right honourable friend the Minister of Agriculture, Fisheries and Food and his advisers have of course been in very close touch with all those concerned in the industry about the problems and a wide range of proposals that have been put forward have all been most carefully and thoroughly considered.

Earlier today, in Luxembourg, my right honourable friend announced new measures of assistance for farming. He explained that milk is the sector of prime importance—which is why I relate it to this debate—partly because it is central to the expansion policy and partly because of its dependence on grassland, which has been hard hit in the drought. The most serious effect of the drought has been the loss of grass and fodder crops, which will greatly increase the dairy industry's feed costs. The Government are concerned to avoid a reduction in the dairy herd, which could set back the basis for further expansion next year, and have therefore decided to increase the guaranteed price for milk by 1p per gallon for the 1976–77 milk year. This will enable the boards to increase by about 2p per gallon the price received by producers for the coming winter months, at a cost of some £30 million.

The additional 2p per gallon for producers reflects the exceptional circumstances of the drought; this increase results in a revised guaranteed price of 44p per gallon applying to the 1976–77 marketing year as a whole and covering the period up to the end of March. To finance this increase, while containing food subsidies expenditure within the agreed provision, it will be necessary to bring forward an increase in the retail price of milk, which will now be raised by 1p per pint at the beginning of January.

The other area of the livestock sector that is particularly vulnerable because of its dependence on grass and fodder crops during the winter is sheep. For sheep, as for cattle, market prices are likely to be firm next year. In order to underline these prospects, it has been decided to increase the guaranteed price for fat sheep for the first three months of 1977 by 3p per lb.

The third decision announced by my right honourable friend concerns the Beef Cow Scheme. Because the drought may have caused some farmers to draw on their winter feed stocks earlier than usual, it is proposed, subject to Parliamentary approval, not to make it a condition of the 1977 beef cow payment that the animals should be maintained throughout that year, but to make a final payment of this subsidy on the number of eligible animals in beef cow herds on 1st January 1977.

Finally, my right honourable friend has announced a measure affecting farm water storage. The drought has underlined the advantages which can accrue from farm water storage. The industry's resources for capital investment have, however, been depleted because of the drought. It has therefore been decided temporarily to increase the rates of grant aid available for the installation of water storage on farms and horticultural holdings. Subject to the approval of Parliament and consultation with our EEC partners, it is the Government's intention to increase the rates of grant under the Farm Capital Grant Scheme and the Farm and Horticulture Development Scheme by an extra 20 per cent. of the cost, in respect of applications made during a I2-month period. The Government believe that all these measures will enable the industry to overcome some of the worst effects of the drought and maintain the basis for further expansion in the future. I apologise to noble Lords for adding this on, but I thought it right and proper at the first opportunity to inform the House.

11.59 p.m.

My Lords, I thank my noble friend for that last statement, which we will read with great interest and wish to study before asking questions about it. I also thank him for his authoritative exposition of the Government's opinion of the Commission's proposals. I listened to his remarks with interest and I am glad to say that I did not detect a great deal of difference between the Government's opinion of the proposals and that of our Committee. Of course he is very right to emphasise that there must be restraint on the intervention prices set each year; otherwise, it will negate the whole of the Commission's policy.

There are one or two points that were made during the debate that I should like to pick up. The noble Baroness, Lady Elles, said that she did not know where the figure of a 10 per cent. surplus came from. I do not know either, and my own personal calculation was that was probably nearer 5 per cent. However, we have been given that figure and I shall try to dig out the figures on which the Commission are basing the percentage. The noble Baroness also tore us off a bit of a strip for having included in the report an opinion on the differences between margarine and butter. This came from the DHSS. We on this side of the House think that everything the Government say and do is absolutely right, but the noble Baroness may take the opposite view. However, that is where the information came from.

My Lords, I am grateful to the noble Lord for that explanation. I think that the difficulty may be in the way this is set out in the appendix. If at any time there were a reprint or revision, it might be made clear that the statement on margarine and butter was all part of the reply given by the DHSS. I feel that the casual reader might not necessarily conclude that.

My Lords, I accept the criticism of the noble Baroness and, indeed, I was confused by this myself and had to check up. I think that her point is a very good one. The noble Baroness also said that we had made no mention of food aid through skimmed milk powder. This is already in the Common Agricultural Policy and it is not included in the package of proposals, though I accept the noble Baroness's point that there should be more active selling of the skimmed milk powder policy.

My noble friends Lord Sainsbury, Lord Collison and Lord Peart also said that in the imposition of this levy there was no consideration given to the consumer. I do not think that I can accept that. The whole point of the levy is to contribute towards reducing the amount of milk that is being produced, and that will eventually be to the benefit of the consumer as taxpayer. One cannot have it both ways. One must try to work out a way of reducing the surplus and, to do that, one must start with the producer.

My Lords, what we were saying was that this is a hidden price cut, but that that price cut does not pass on to the consumer. It is as simple as that.

My Lords, I accept that. It does not immediately pass on to the consumer, but it is something that is being done to reduce the surplus and therefore, we hope, the price of milk in the long term. It does not do anything immediately. I think that that is all want to say. I should like to thank all noble Lords who have spoken, and also to pay tribute to the Committee for its thoroughness and assiduity in its task.

On Question, Motion agreed to.