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5.34 pm

Mr. Gareth Thomas (Clwyd, West): This debate has been interesting for a variety of reasons, not least because of the bout of in-fighting that broke out on the Opposition Benches following the speech of the hon. Member for Ludlow (Mr. Gill).

I might not be quite as much of an Euro-enthusiast as my hon. Friend the Member for Harlow (Mr. Rammell), but I think it fair to say that most farmers in the United Kingdom are realistic, and they know that their future, and the future of the UK, depends on our continuing to be a member of the European Union. However, there is a great deal of frustration that institutions in Europe, with which this Government and others have to deal positively and robustly, are not always seen to be open and accountable regarding the needs of British agriculture. Surely there is a need for a lighter touch as far as European regulations are concerned. I say that not from a Euro-sceptic but from a realistic point of view.

A number of right hon. and hon. Members have sought to catch your eye, Mr. Deputy Speaker, so my contribution will be short. I welcome the outcome of the recent agricultural summit. The package has been welcomed by, among others, the president of the National Farmers Union, who described it as going a long way and giving a clear signal that the Government believe that British agriculture has a crucial role. The package has also received a welcome among my constituents, many of whom are involved in farming. Although times continue to be extremely difficult for farmers, things are improving somewhat.

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This is a Government who have listened to farmers. The aid packages alone that have been available during the Government's time in office, which amount to £1 billion in extra spending, are testimony to the fact that Labour's claim to be the genuine party of farmers is correct. I am particularly pleased that, so far during this Parliament, the Government have put into hill farming subsidies to the value of £700 million.

The action plan is to be welcomed. The removal of so many of the regulations that have been an irritation to farmers, and a disproportionate cost, is to be welcomed. I am particularly glad that the Government have committed themselves to retaining hill farming subsidies at the increased level for the next year.

I wish to concentrate on three issues--the milk sector, modulation, and the need for a long-term strategy, including the role of the Treasury and other Departments in delivering that strategy. Although livestock farming predominates in my constituency--the vast majority of my constituency is within the less-favoured area--dairy farming in the Vale of Clwyd has none the less been an important industry. Clearly, dairy farmers are in an almost unsustainable position. The figures demonstrate beyond peradventure that the costs of production are becoming higher than the price realised on the market. I agree with my hon. Friend the Member for Stroud (Mr. Drew) that many producers are using the intervention milk price equivalent, which is no more than a floor, as approximating to the price that farmers should expect at farm gates.

It is a vicious circle, and it is difficult to see a way out. More liquid milk is going on the market because more imported processed products are coming in owing to the uncompetitive position of the pound in relation to the euro. It is a vicious circle, because it means that farmers are getting less for the liquid milk. As one farmer told me recently, "You can't stop milking. You can't put the milk back in the cow." It is, of course, a perishable product, and it is true that many processors are taking advantage of the situation. Does my right hon. Friend the Minister of State accept that there continues to be enormous frustration and indignation that processors are exploiting a bad situation? I ask her to take up that matter when she replies. The report of the Office of Fair Trading will soon be forthcoming, and I hope that we shall see some Government action to deal with what are perceived to be the unfair practices of supermarkets and larger processing conglomerates. Producers must get a fair price for their product.

Farmers in my constituency and in other parts of Wales are getting out of dairy because they cannot make a living. They are going into sheep. However, that in turn is depressing the market for lamb. Perhaps that demonstrates how interrelated these problems are and how essential it is to develop a strategy.

The strong pound is undoubtedly having a deleterious effect on farming, as on manufacturing industry. There is the welcome news today that the pound has dropped substantially against the euro. It is to be hoped that that trend will continue.

I accept that there is little that the Government can do in terms of the macro-economic position, but surely we must have a strategy that enables producers to form co-operatives and to add value to their products so as to

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compete and make their product viable. That is a role for the common agricultural policy and for the Government and devolved bodies.

Milk and milk products need to be promoted more vigorously. I am not quite up to date with the Government's position on free school milk, but I understand that the Americans have done much work on promoting milk in their schools. They take the view that, for every dollar spent on promotion, they get back $4 in extra sales. Will my right hon. Friend the Minister of State deal with the issue? It seems that there would be a healthy demand for milk if the product were served and marketed in an attractive manner. I do not mean supplying it in lukewarm, tatty plastic bottles on school playgrounds.

In principle, modulation is to be welcomed, but many farmers in my constituency--I am sure that this applies to small farmers especially--are perturbed that it has been applied across the board and that everyone is affected by it. However, the recycling effect--the money that comes back--will apply to only a few, under the so-called "horizontal measures" under the CAP. It is not possible for everyone to go organic or to diversify, especially for those who are at a pretty high altitude in the Welsh hills. Will the Government reconsider the position?

Surely the Treasury has a responsibility. I do not believe that it is solely a European responsibility to provide extra funding to enable the industry to restructure. I am particularly interested to know the Government's view on this issue. The French use a sophisticated support method, which involves their social security system and other organs of Government, to prevent rural depopulation. The Treasury has a role in helping to cover the additional costs of administering the date-based export scheme and tagging. The Treasury should not absolve itself of responsibility simply because we are dealing with agriculture and the CAP is predominant when it comes to making policy.

The Ministry of Defence also has a responsibility when it comes to sourcing British lamb products. Some 90 per cent. of lamb consumed by our military forces comes from outside the UK, which causes great alarm and anger among hill farmers, particularly in Wales. The Ministry should redress that problem.

A long-term strategy for farmers is essential. They need to know not just how they will survive until next year, but how they and the whole industry will develop over the next 20 years. I am confident that the Government are adopting the right policies and can claim to be the genuine party of farming.

5.46 pm

Mr. Elfyn Llwyd (Meirionnydd Nant Conwy): The outcome of the negotiations held during the Berlin summit was not as radical as the original proposals. A 20 per cent. cut in support prices for cereals had been suggested, but the agreed cut was 15 per cent. in two steps. For beef, it was proposed that there should be a 30 per cent. reduction, and the final reduction was 20 per cent. Although a reduction of 15 per cent. was accepted for cereals, it will take place five years later than planned.

As a result, the European Union will appear more protectionist at the start of trade talks, which will raise doubts about its ability to meet its commitments on market access and subsidised exports. The reforms will not placate critics of the common agricultural policy inside or outside

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the EU. Franz Fischler, the European Commissioner, has emphasised the importance of what the Commission calls the European model of agriculture. He describes a model

It is, he says,

The model is supposed to produce renewables, provide environmental services, protect the countryside, maintain the vitality of rural areas and respond to social expectations concerning the origin and traceability of food, ecology and ethical issues such as animal welfare. That is the strategy that is supposed to protect, or even enlarge, the so-called "green box" in the face of continuing attacks on CAP market prices.

By increasing the proportion of the agricultural fund allocated to co-financed measures, the EU is limiting its potential future liabilities from enlargement. However, because of a lack of clear opinion on what further reforms will occur--particularly as a result of enlargement--there is great uncertainty and worry among farmers in Britain. I agree entirely with the interesting and well-researched speech made by the hon. Member for South-East Cornwall (Mr. Breed). I had intended to speak on retirement and new entrants, but need not do so as I cannot add to what he said.

By and large, the farming industry is, as the hon. Member for Clwyd, West (Mr. Thomas) said, opposed to modulation--at least as it is currently framed. In principle, no one argues against modulation, but, according to the discussions that I have had with unions and individuals, it is being canvassed in a way that is totally unacceptable. It is suggested that there will be a 2.5 per cent. cut in grant in the first year, rising to 4.5 per cent. in 2006-07. The Minister of Agriculture, Fisheries and Food said that the Treasury is then supposed to contribute £1 for every £1 modulated, so long as the Treasury agrees. We in Wales well know about pound-for-pound match funding--the Chancellor is pretty reticent about committing himself to it. After about six years, an extra £78 million for rural development will be available for Wales alone--if the match funding is provided.

I am sure that modulation is being introduced for the best possible reasons, but the formula that has been chosen is disappointing. It appears to hit those most in need. It clearly needs to be better thought out. The industry would benefit from a tapered formula, whereby larger farms are top-sliced most and smaller family farms and those with high labour units receive more subsidy. That would help to level out the industry. A formula similar to that operates in France, where the size of the farm and--importantly--the number of workers are taken into account. The money is then focused on the poorer areas that are most in need. If such thinking were employed, it would be extremely helpful to many farmers in Wales.

However, the caveat about the money from the Treasury remains. For example, objective 1 areas in Wales are entitled to 75 per cent. assistance, but we understand that the Chancellor is willing to give only 50 per cent. If we do not receive sufficient backing from the Treasury, there will be a problem.

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There is general consensus that the agriculture industry is in crisis--as is the rural economy. To be fair, farming unions, politicians on all sides and--more important--farmers themselves welcomed the Government's aid package, announced after the farming summit at the end of March. However, that provided only a breathing space for farmers; it does not tackle the crux of the problem. The Government have tackled the symptoms and not the disease. One part of the disease is the strength of the pound.

The current CAP arrangements are scheduled to run until 2006. They do not satisfy farmers, land managers, consumers, environmentalists or any other rural interests. The Berlin Agenda 2000 agreement does not adequately provide for enlargement of the EU or for the EU's current and prospective World Trade Organisation commitments on agriculture. The CAP must evolve from a commodity- based production subsidy to a more integrated rural policy. Such a policy is needed to promote viable, stable and competitive agriculture. The industry needs a period of stability--that has been missing for many years.

I am glad that the Government were recently willing to concede the allocation of funds for agri-monetary compensation, because there are, of course, serious economic imbalances caused by the high value of the pound against the euro and so on. However, the £66 million set aside for that compensation--as an attempt to level the differences between the pound and the euro--is not enough. Farmers unions were calling for £215 million.

However, throwing money at the problem is not good enough, as I shall explain. The amount set aside is tiny compared with the estimated £3 billion--according to The Times--that the industry has lost because of the strength of the pound. That £66 million offers a breathing space--a slight relief, but nothing more.

During the farming summit, the Prime Minister admitted that a start had been made. He said that

I regret that that vision has yet to become apparent. We need an integrated rural strategy, with a healthy agriculture industry at its core. Yes, we need the creation of work, diversification, the relaxation of planning regulations, sustainable transport and so on. We need a vision that comes in an all-embracing package, but it must have a strong agriculture industry at its heart.

Something will have to be done about the artificially high level of sterling. The hon. Member for Clwyd, West referred to a change of attitude. That blip might be of some assistance, but a more determined effort must be made.

The discussions on the Berlin Agenda 2000 did not give enough consideration to enlargement. There is much uncertainty about enlargement, the role of the WTO, the future of the CAP and whether the industry is sustainable. Of course, the future of our rural communities is also uncertain. We need to consider a truly integrated rural policy. The Government must press the European Union to redirect the direct crop and livestock payments towards rural development regulation.

Further CAP reform will expose agriculture to the volatility of international markets. Every farmer to whom I speak says, "I want to go out into the marketplace;

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I don't want to be paid for staying at home doing nothing; I want to be back in the market so that I can sell my produce for what it's really worth." Farmers in Britain are not afraid of competition, but, because of the way in which the CAP has been structured, it will not come overnight. It certainly will not come in isolation from the other necessary reforms for rural areas. Ultimately, however, there must be a safety net to even out the extremities of farming incomes. We have heard much about incomes today, so I will not pursue that point. However, it is clear that there is a crisis.

One part of the disease is the strength of the pound, but we must remove the impediments to rural development that are embedded in the current planning and tax systems. Those problems must be high on the Government's agenda. I was pleased to hear the Minister for the Environment say that they will be highlighted in the forthcoming White Paper--let us hope so and that the White Paper appears soon. I suggested to the right hon. Gentleman on Tuesday that planning legislation should be relaxed to enable small and medium-sized enterprises to develop sustainably in rural areas and to assist in the overall pattern of rural regeneration. I was pleased with his reply and I hope that it is a precursor to a positive White Paper on which we can all build. The small and medium-sized enterprise sector needs assistance. There is no reason on earth why it cannot flower in rural areas and become part of the rural regeneration scene.

Yesterday, the Prime Minister acknowledged that the strength of sterling was detrimental to manufacturing industry. Obviously, it has just as bad--and probably worse--effects on the farming industry. There is a consensus that farming must become more viable and, in some areas, diversification is the answer. However, in other areas, the answer is farms coming together and working as co-operatives.

I ask the Government to do something urgently about the value of the pound, and to draw down some pro tem relief from the substantial agri-monetary compensation scheme. Above all, will they please consider a better, strategic and overall view of rural regeneration? At the heart of all that is a healthy agricultural industry.

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