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Session 1997-98
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Standing Committee Debates
Scottish Grand Committee Debates

Agriculture

Scottish Grand Committee

Tuesday 27 January 1998

(Westminster)

[Mr. John Maxton

10.30 am

The Chairman: The first item of business is a statement by Lord Sewel on the pressures and prospects of Scottish farming. As there is no time limit for the statement nor for questions from the Committee, I shall have regard to the number of hon. Members who are standing as to how long I shall allow the statement to go on. I am aware that the next debate will be foreshortened if I allow the statement to run for too long.

Scottish Farming

10.31 am

The Minister for Agriculture, Environment and Fisheries (The Lord Sewel): I welcome the opportunity to make this statement about the pressures affecting, and the prospects for, Scottish farming. I do so recognising that there is concern about the industry and for the position of hill farming in particular.

I shall begin by briefly putting Scottish farming in context. It is one of our basic industries, with a long history and a well-founded reputation for the production of quality primary products. Its gross output contributes almost £2 billion to the economy. It contributes 2.2 per cent. of the Scottish gross domestic product; it directly employs 48,000 people excluding spouses and helps to support about twice that number of jobs in other Scottish industries. Because of Scotland's physical characteristics, hill farming is an important part of the industry. It operates where there is often little or no alternative to farming, where employment is scarce and where the countryside is scenically attractive, yet is often at its most sensitive, environmentally.

Scottish farming depends heavily on subsidies. In Scotland, where there are about 22,000 full-time farmers, the taxpayer met a bill for a record £500 million in direct subsidies in 1997-98. As can be seen from table 1 [Hon. Members: "Table 1?"]. Table 1 will be circulated in due course and when hon. Members have had the opportunity to consult it, they will see that direct subsidies last year accounted for more than 130 per cent. of farm income.

Farmers also benefit from market support, which can crudely be seen as consumer transfers to Scottish farmers. Market price support is invisible, but is nevertheless real, in that it is implicit in the higher price that consumers pay for their food. Measures such as intervention buying and export refunds, and the effects of external tariffs, keep European Union agricultural prices well above world prices and also benefit Scottish farmers in the short term. In 1996, such market support was worth about a further £140 million. As EU prices have come closer to world prices, market support has fallen, but it still remains important for some commodities, notably milk.

There is substantial Government support for the industry through the funding of agricultural research and development, towards which my Department alone contributes some £40 million a year. The Government also provided significant financial assistance for marketing farm produce. Livestock farming in our hills and uplands is the sector that is most dependent upon direct subsidies. On average, hill farmers receive about £25,000 in direct support, more than double their average net farm income of less than £10,000.

Scottish farming remains an important industry in much of Scotland, helping to maintain the social fabric and providing stewardship of our countryside, yet many of our farmers particularly our hill farmers do not rely on the market for their returns. They are heavily dependent on Government subsidies.

Of the pressures affecting Scottish farmers unquestionably the greatest in recent times has been BSE. It has shaken the industry to its core, and its effects can be seen throughout the whole chain, from the primary producer on the hill right through to the consumer. The effects, as many may suppose, are not confined to the beef sector, which long before the appearance of BSE was in structural surplus throughout the European Community. Even without BSE, the beef industry was facing a steady reduction in demand of about 2 per cent. a year.

Other commodities have also felt the chill. Some sectors may have gained a brief advantage from the displacement of beef, but that has not cushioned them from the wider impacts. The fact that the animal disease record in Scotland has been good has, if anything, added to the impact of BSE. The disease has unquestionably set back Scottish farming, with the most vulnerable producers on our hills and uplands feeling the pressure most.

The burden has not had to be borne by farmers along far from it. The United Kingdom taxpayer has had to meet a hugh bill. Direct expenditure on BSE-related measures to date for the United Kingdom as a whole comes to about £2.5 billion. Over-30-months-scheme payments to producers in Scotland alone already amount to more than £100 million. At present, they run at about £700,000 a week. Although I do not wish to predict the level of BSE-related spending that will be required in coming years, the decline of BSE is likely to have an influence on funding.

As I have said, BSE has had and is continuing to have significant financial impact on farming. However, other financial pressures are also at work. The annual review of farm incomes undertaken by economists and statisticians in my Department will be announced on Friday in a statistical press release. I expect the statistics to show that most Scottish farming, including arable and dairy farming, was significantly less profitable than it has been in recent years. Poorer weather, less buoyant markets and, of course, the strength of sterling all had a bearing on that.

Farmers are well used to, and indeed accept, the vagaries of the weather. I am aware that yields last year in the cereal sector were down because of difficult harvest conditions. That has meant that arable area payments may have become more significant than they were in the past. By 31 December last year, Scottish farmers had received £124 million under the 1997 arable area payments scheme. A further £20 million or so is due to be paid in respect of the second tranche of oil seeds payments when the Commission announces the final payment rates, and the remaining 5 per cent. is for cereals, proteins and set-aside. My officials are working hard to ensure that the bulk of those payments are made by the end of March.

Farmers also accepts ups and downs in the marketplace, and they are bound to be concerned about current lamb prices. They complain loudly about hardships arising from adverse weather and major downturns in market prices, but, as a rule, they do not complain to the Government. Farmers seem to have a blind sport on exchange rates a defect from which other industries in Britain do not appear to suffer. Farmers want full agrimonetary compensation, arguing that it is theirs by right. However, they forget that there is no such thing as free money [Interruption.] Even paying the part that we can reclaim from the EU budget costs the UK taxpayer £71 in every £100 of so-called EU-funded common agricultural policy expenditure in the United Kingdom. In view of the specific difficulties confronting beef and sheep farmers, the Government recently announced £85 million of special aid most of which, subject to clearance by the European Commission, can be paid by April. This one-off additional cash injection, of which Scotland's farmers should receive just under 30 per cent. is justified for the following reasons. First, structurally, the beef and sheep sectors in the less favoured areas find it most difficult to absorb and adjust to the changes in income generated by green rate revaluations. Secondly, BSE has restricted the market for Scottish beef and, as a result, extremely valuable export markets have been lost. Undoubtedly, that has had the effect of depressing returns to producers on the home market.

Finally, increased amounts of beef have been imported to Britain partly because of the strength of sterling and partly because the over-thirty-months scheme and the calf processing scheme have substantially reduced beef supplies in this country. We took the view that available aid should be targeted at those in most need. In Scotland, that is the primary producer farming in our hills and uplands.

Another form of financial pressure on the farming industry arises from net costs being passed back to, or charges being levied on, the producer. It has been claimed that such charges do not have to be met by competitors abroad, thus giving them a competitive advantage. I have sympathy with our farmers when genuine distortion of trade arises. However, given the degree to which UK taxpayers and consumers already support farming in this country, it would be quite wrong for them to have to bear directly any additional costs or charges. Moreover, as public expenditure comes under ever greater strain, I expect that other member state Governments, who are not at present following the UK's line of passing back costs, will decide to follow our example. As these measures improve the confidence of the consumer in the quality of Scotch beef, the farmer will ultimately benefit.

Apart from financial issues, more subtle pressures face the farmer. Those arise because of society's demand for more welfare conscious and environmentally friendly farming regimes. Beyond the farm gate, the industry has to contend and rightly so with ever higher hygiene standards throughout the food chain. Ensuring the safety of food must be paramount. That is good not just for the consumer but for the image and future prosperity of farming. Food safety goes hand in hand with the quality assurance schemes, which are now so much a part of the food scene. That is the best way to secure markets rather than see them being eroded by others who do things in a way that does not provide the assurance that the modern consumer demands. The new Food Standards Agency is a major initiative which we have taken to try to secure that. It represents a large commitment by the Government but I believe it to be likely to produce worthwhile results.

As I said, more and more farm-assured products are being demanded, putting pressure on the farmer to supply them. It may be argued that the burden of additional costs arising from those developments should be carried by taxpayer. I reject that totally. There is, in my view, some obligation on the part of the consumer to bear a share of such costs. Failing that, however, the costs can only go back along the chain, and in some cases fall on the farmer, because the measures are in the farmers' interests in enabling them to retain market share.

The pressures that I have outlined must be faced by farmers at present. Other pressures, however, will have to be tackled in the foreseeable future. They will be of even more fundamental importance and will shape the structure of the industry in this country into the next century. First, there is reform of the common agricultural policy. The CAP as it stands at the moment is unsustainable. One has to think only of the dairy regime to see the folly of a system that effectively inhibits an efficient sector from competing in a growing world market. The Government will certainly be exerting maximum pressure for change within the context of the European Commission's Agenda 2000 proposals.

Radical change is not only in the nation's long-term interests but is also in the best interests of the farmer, including the Scottish farmer. Reform of the CAP will be followed by the next round of World Trade Organisation negotiations, which will, to put it mildly, be uncomfortable for the European Community and seem likely to increase pressure for further reform of the CAP in due course. Finally, there is EU enlargement to contend with in the not too distant future. New countries, with considerable agriculture potential, will join the Community to compete with our home industry. Those three factors mean that if Scottish farmers are expecting the status quo to continue they are in for a rude awakening.

As for the prospects for Scottish farming, clearly a resolution of the ban on exports of Scottish beef to Europe and further afield is very important, not only to the beef producer but to our farming sector as a whole. That explains why the Government are continuing to press hard in Brussels for the ban to be relaxed. Even though it will apply initially to Northern Ireland only, acceptance of the proposed export certified herds scheme clearly would be a useful first step on which we in Scotland could build. The date-based export scheme, which has been developed since May, is also being considered by the Commission at present and has a much wider application. Progress on that scheme holds out the prospect of much wider access to the export market which will be of particular benefit to Scotland. The ultimate removal of the ban will also give welcome respite to the hard-pressed taxpayer who must bear an extremely hefty financial burden at present.

Looking ahead at prospects for Scottish farmers, it is extremely difficult to predict the size and shape of the sector, in ten years time. No doubt some people will take a decidedly depressed view of the future. Certainly, if farmers do not respond positively to the pressures that I have mentioned, that pessimism is likely to be borne out. If, on the other hand, farmers recognise the need to adjust their business practices; if they acknowledge their role as custodians of the countryside and take positive action to safeguard the environment; if they improve their efficiency at all levels and most of all if they heed market signals and produce quality assured produce, then a much more optimistic outcome is in prospect. Adjustment in the size of the agriculture sector, including hill farming, is inevitable, irrespective of the response of individual farmers. I hope that that will lead to a leaner, fitter farming sector. As part of the process of change, there will have to be a transition from heavily subsidised farming to less dependence on state support. Such a change will have implications for the more vulnerable hill farming sector, and the case for financial aid will need to be carefully assessed.

I shall outline the part that I envisage the Government playing, not only in tackling current difficulties, the existence of which I acknowledge, but during the transition to more market oriented Scottish agriculture. Farming remains so important to Scotland that there is no question of Government abandoning the farmer. I intend to work closely with farming interests to ensure that rationalisation and restructuring is as painless as possible. I shall continue to support quality-assured Scottish produce, with the emphasis on ensuring that it earns as much as possible in the market. I want to build on our reputation for high quality, primary products by adding as much value as possible in Scotland. I shall not adopt solutions that rely on ever-increasing subsidies.

Scottish farmers face major challenges with which I am prepared to help as far as I can, provided that they accept that those challenges can be overcome only by a reduction, not an increase, in their dependence on the state. The period of restructuring is driven by internal and external factors. At the end of that period, I want to see a more competitive, more market responsive and more economically viable agriculture industry.

Several hon. Members rose--

 
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Prepared 27 January 1998