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Agriculture (West Dorset)

11 am

Mr. Oliver Letwin (West Dorset): I assure you, Mr. Deputy Speaker, that your relief on seeing the Minister arrive is nothing as compared to mine. For the purpose of the record, he is indeed prompt, just. It would have been sad had he not been present, as the purpose of these debates is to bring matters to the attention of Ministers.

I am somewhat in the position of Dr. Martin Luther King, who once had a dream, which I am glad to say has been almost entirely fulfilled. My position differs from his, because I have a dream that is almost entirely unfulfilled. My dream is that there may come a year when I no longer need to ask for a debate on agriculture in West Dorset, because it is in good condition. The previous years have not been such years, and this year is not such a year.

I hope that the Minister will already have heard many times everything that I say today, because it is certainly true of many other parts of rural England. I hope that the Minister is so well aware of the problems that he is already tackling them, but in case some of them have escaped his attention, I shall explain again the problems that currently afflict my farmers.

The first is straightforward: it is lack of profitability. It has been a problem for many years. I say a problem, but for many of my farming constituents with small and mid-sized farms it has ceased to be a problem and has become nostalgia. Many of them are no longer in the business. For others, it is a daily struggle, and many of them are on the point of giving up.

Of course, the lack of profitability is most striking in West Dorset in the dairy sector. It remains afflicted by pricing that neither the Minister nor I, were we currently in the business, would be able to sustain, except with the most monumental efforts. He must be as aware of that as I. Although there is no doubt that there has been a significant effort to push the supermarkets into increasing the prices that they pay, the effect on the farm-gate price of milk is limited because only about 50 per cent. of production is going into liquid milk. For dairy products, I regret to say that there is little sign of improvement.

That is a long-running sore. If that were all, and if there were no side effects and no noise going on that caused additional problems, I suspect that the Minister's task, my task and indeed that of my farmers would be much lighter. A series of items that goes beyond the fundamental economic malaise is addressable, and I hope that the Minister will tell us that he is addressing those problems.

The first relates to the reform programme, so-called. The Minister must have tracked, as I have over some years, the thoughts and tergiversations relating to modulation, digressivity and all the rest of it. Unless the Minister can assure me to the contrary, I do not believe, and my farmers do not believe, that the present proposals will have any effect other than to diminish significantly the economics for many of my farmers.

I do not see any sign that the money that will arise from whatever form of modulation is ultimately adopted will come back to West Dorset. It still seems that there is significant asymmetry, to the disadvantage

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of British agriculture, and, while we are at it, significant irrationality. There is no rational argument for modulation, because modulation is trying to move in the opposite direction from that in which the Government have been trying to move for many years to increase efficiency. I hope that the Minister will be able to tell us that he is working hard to avoid those dire effects.

Many of my farmers went into organic production encouraged by schemes. That is no fault of the present Government; many of the schemes pre-date the present Government. They were also encouraged by some extremely well-meaning individuals, many of whom write to me. No doubt many more write to the Minister. They argue that we should establish much more aggressive targets for organic production.

I have an unbroken record of having written back to such individuals, sometimes to their dismay, saying that they are engaged in a process that is all too likely to be self-defeating. If the target is set high and the production level is sufficient for the production of organic produce to exceed demand, the effect will be to remove the premium.

I have been saying that for some years and, lo and behold, many of my farmers are in that absurd position. They have converted, they are producing perfectly accredited organic produce, and the premium has disappeared. Indeed, some of the produce is being sold on the open market as if it were non-organic. We clearly need to have some rational policy to arrive at a situation in which we are not disadvantaging people twice over: first, because of the extra costs of organic production and, secondly, because they are not getting the premium.

I said five years ago that the pig industry was one of the few rational sectors, in the sense that it had not been systematically destroyed by the lunacies of the common agricultural policy. Alas, it has been systematically destroyed by other lunacies since then, not all of which started then but which have been aggravated. The asymmetry of regulation between the United Kingdom and competing countries—Poland, Denmark and the Netherlands—in the pig industry has reached levels that exceed those that I warned about in previous years, so far as I can see from West Dorset.

I have in West Dorset—sorry, I had in West Dorset— probably the most efficient and sophisticated operation in the British pig industry. Denhay Farms was a process industry that related pigs to dairy and used cycles of production—in effect, it was in a combined cycle. It is a highly modern operation based on niche marketing. One can buy Denhay produce in the most expensive shops in Britain at high premiums. It is a tightly organised business on a very large scale. It would be impossible to imagine a business, other than the very large Velcourt-type operations, that is more modern in its approach than Denhay.

I do not know how we can hope that there will continue to be a pig industry if Denhay has given up pig production, as is now the case. It is still producing bacon and the excellent smoked ham but it has no pigs, because it no longer makes sense to have pigs in Britain. It makes sense to import the pigs.

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When we import the pigs, we export the cruelty. Because the asymmetry of regulation is so great, countries have animal welfare standards of pig production well below those that previously obtained in the UK. They are producing pigs and dumping them. I persist in believing that there is a significant case for assessing that as predatory pricing on the part of some producers in other countries. They are using low-cost production to engage in predatory pricing to destroy the British pig industry, and once destroyed the costs of entry are considerable. We are still under pressure that would increase the likelihood that no pig industry will exist in Britain. People write to me—as they probably do to the Minister—about the need to end the use of farrowing crates. That would be the final blow. I also discover from constituents in Tolpuddle that they, as small organic outdoor pig producers who are just surviving thanks to their organic status, will no longer be allowed to engage in cutting on farm. As a result of some meat products regulations, they will have to use an approved abattoir miles away. Why add another level of regulation that will end up by destroying what little agriculture is left?

I have said in previous years, and I will say again, that the crisis will come in bovine tuberculosis. It will be greater than anybody presently imagines, because consumer confidence will be affected to such a degree that Ministers will not be able to contain it, if there is a serious outbreak of bovine TB. However untrue it may be that bovine TB affects the quality of milk—I do not offer a scientific opinion on that, because I have no scientific background from which to do so—the hysteria will generate a huge fall in consumer confidence if a widespread outbreak occurs.

The Krebs tests have gone well beyond an appropriate time scale. We still do not have any reason to believe that they will produce a sensible policy on badgers in any reasonable time. We do not have any sign of the development of accurate tests or proper vaccinations, but I hope that the Minister can tell us that something can be done about that promptly.

Many farmers in my constituency will not be able to afford the cost of the new scheme for fallen stock that is due to start in April. The Government have talked about partial funding, but we need to know more, and quickly, because it is now February. I hope that the Minister will be able to tell us that the partial funding will in fact be complete funding.

The Minister will be aware from his correspondence records that I—and, I am sure, many other Members—have written to him repeatedly about the problems with the British Cattle Movement Service. The organisation continues to provide aggravation that is farming's equivalent of the Passport Agency or the immigration and nationality department, although it does not reach quite the same levels. The problems caused by BCMS cross-checking with the Department for Environment, Food and Rural Affairs about non-payments and delays have left some of my farmers tearing their hair out. I hope that the DEFRA review will lead to improvements, and I would be grateful for the Minister's comment on that.

I may be a ludicrous optimist and, indeed, the fact that I am talking about agriculture in the area of west Dorset at all suggests that I probably am, because the pessimists do not believe that it will exist in future.

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However, I have long harboured the hope that many of the problems that I have outlined could be significantly ameliorated in the long run by a movement towards biofuels. It could have huge environmental consequences, as I am sure the Minister agrees. Therefore, in my area we welcomed unreservedly the biodiesel changes in the Budget of a 20p reduction in tax per litre. I also welcome the pre-Budget report suggestion that the tax on bioethanol will be similarly reduced. I am conscious of the fiscal constraints on the Chancellor and I understand that they are getting tighter, but industry estimates suggest that the cost differential between biofuels and ordinary fuels is more than 20p—it is more in the region of 25p to 30p a litre. That explains why we have not yet reached the tipping point and why the uptake of the opportunity to produce biofuels has not yet become significant.

I hope that the Minister shares my belief and is willing to lobby the Chancellor on the point. It will be a case of Treasury myopia if 20p per litre is not increased to 30p, or at least to 27p or 28p. If we could reach a tipping point, the benefit would be felt in the environmental effects and the huge advantages for my farmers in west Dorset, and it would also make a significant fiscal impact. If the industry could develop significantly, it would add, to the direct taxation on the sale of fuels—which is classed, oddly enough, in Treasuryspeak as indirect taxation—the indirect tax, which is known in Treasuryspeak as direct tax, on the corporations that are making money by producing the fuel. If the two are added together and compared to anything other than North sea production, such as imported fuel or allowing increased exports of North sea production, the fiscal equation begins to look very different from that on which I imagine the Treasury mandarins are currently basing their calculations. I hope that DEFRA will use its endeavours to persuade the Chancellor that it would make sense to try to reach that tipping point. We are almost there. It would not require much further effort, but it would make a huge difference to my farmers if they could see that light on the horizon.

I have taken 16 minutes, and I leave the remaining 14 minutes to the Minister to provide—I hope—the answers that will make my farmers happy for the first time in a long time.

11.16 am

The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Mr. Elliot Morley) : I congratulate the right hon. Member for West Dorset (Mr. Letwin) on obtaining the debate and on making an effective case. He has dealt with a range of issues affecting his agricultural constituents and I understand and share many of the concerns that he has raised.

Milk prices have been poor for a range of reasons. Prices are influenced by world prices, as well as home demand, production levels and the exchange rate. We have tried to provide assistance for our dairy sector through the mechanisms of the common agricultural policy, but the real problem is supply and demand and the volatile nature of the market. In the aftermath of foot and mouth, it was calculated that the dairy sector would experience a dip in production and a potential rise in demand. However the dip did not materialise, and an increase in production has led to price falls. Other

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innocent victims were those people who had converted into organic milk production, who were caught by the same problem of supply and demand. The right hon. Gentleman was right to point to the danger of targets, which can play a role in driving policies, but care must be taken not to apply them too rigidly. If targets are applied too rigidly, production starts to be focused on just hitting the target, instead of responding to market demand, and that risks having an effect on the premium.

I am glad to say that we have produced an organic action plan that contains the flexibility that the right hon. Gentleman wishes to see. It has the support of the organic bodies, the National Farmers Union, consumer groups and environmental groups. I do not know whether the right hon. Gentleman has had the chance to see the plan, but I can ensure that he is sent a copy. I am sure that it will be of interest to him.

The right hon. Gentleman also rightly raised the issue of the current negotiations in the mid-term review. We think that the Commission is heading in the right general direction, especially on decoupling, the problem of production subsidies and the need for changes to the CAP. We will not achieve any of our objectives in the World Trade Organisation negotiations unless other countries see us making progress on agricultural production subsidies that distort the market, affect developing countries and do not even deliver for our own farmers in their artificial effect on prices.

I understand and share the right hon. Gentleman's concerns about the modulation elements of the proposal. Modulation is not ideal, because the ideal outcome would be the removal of all production subsidies, which would allow the freedom to apply the rural development policy and environmental policies without that rigid framework. However, we do not live in an ideal world and, as part of a transition, a case can be made for modulating the direct support payments and putting the money into the rural development fund framework. In that way, the money would go back into the rural economy. It is an opportunity for farmers and it would use the money more constructively than simply using it for production subsidies, with all their attendant problems. At present, the way in which the modulation proposals are unfolding in the mid-term review is not logical and would work against the nature and structure of UK farming. Nor would they deliver the money in the same way to the rural development programmes. We will try to change that.

I have much sympathy for the points that the right hon. Gentleman raised about pigs. The pig industry is strong in my area and I have much regard for the industry for precisely the reasons that he advanced. It has always operated without subsidies, it is efficient and good at marketing and, left to its own devices, has been a successful sector of agriculture. Unfortunately the industry has faced similar problems with prices as other sectors have. Prices are stable, but do not provide the sort of return that the industry needs and deserves. When the industry went through a very difficult period a few years ago, the Government made £66 million available over three years to assist it through the restructuring scheme. It was taken up by many sectors in the industry.

I understand that the Commission introduced private storage aids in December 2002, which are also designed to stabilise the market and improve prices. That is a

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considerable commitment from the Government in recognition of the particular problems that the pig industry faces. We are also trying to re-open some of the important markets for pig meat products that have been lost over the years for various reasons. For example, Japan used to be a high value market for a range of pig products, and we are working hard to re-open those markets. DEFRA is also sponsoring the world pork congress, which is designed to stimulate international trade—something that our industry has always been very successful in achieving.

We are also trying, with some success, to improve the market for genetic products. That market has been subject to some restrictions, but embryos and semen have been high value exports for our industry in the past. When I attend international conferences, I always take the opportunity to meet the Agriculture Minister of the country to press the case for semen and embryos, so I have become something of an expert on the international trade in those products. I perform the same service for the beef sector, and for ovines—other areas in which we have traditionally had high quality and high value, if limited, exports. We will do our best to assist the pig industry within the rules that apply.

The right hon. Gentleman also mentioned bovine TB. It is a difficult issue, but I do not believe that we may face a potential consumer problem. TB in cattle posed a real problem before pasteurisation, but since its introduction milk has been absolutely safe. Bovine TB cannot be passed on through pasteurised milk and that protects the consumer.

Mr. Letwin : I took pains not to challenge that scientific view, but does the Minister agree that the hysteria of the tabloid press and the fears of those who are no longer convinced by the scientific evidence are likely to lead to a scare that we are unlikely to be able to counter, no matter how rational our explanation?

Mr. Morley : I understand that point, and it is fair to say that we cannot predict how food scares will take hold. However, there is no rationale for any such scare, and we can demonstrate that. The existence of the Food Standards Agency has also made a huge difference to consumer confidence. The right hon. Gentleman is right to say that the credibility of Government scientists and Departments has been damaged by food scares, especially in the days of the old Ministry of Agriculture, Fisheries and Food. The FSA, which has an independent role, has been successful in providing well-balanced and rational opinions on food issues.

We have introduced extra measures to deal with the backlog in TB testing that built up during the foot and mouth crisis, when we diverted all our staff and resources, and we are making progress. We have also recently introduced a new package of control measures, which involves the licensed movement off farm of non-reactor cattle, in certain circumstances; the imposition

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of movement restrictions on herds with overdue tests; and a pilot project to assess the effectiveness of the gamma interferon blood test, which is what I think the right hon. Gentleman meant when he talked of better and more accurate tests. The test is relatively new and we are introducing it in several areas to test its effectiveness. We hope that it will be faster and more accurate, which would certainly assist our TB control strategies.

As the right hon. Gentleman mentioned, we also have the Krebs experiment and the independent scientific group, chaired by Professor Bourne, which does an excellent job in advising the Government. We also have a stakeholder group on animal health issues, and a TB forum on which the industry is represented. That gives farmers an opportunity to raise their concerns.

It is true that we presently spend £30 million on fallen stock collection, including over-30-month stock, fallen cattle under our BSE monitoring and the result of transmissible spongiform encephalopathy monitoring in sheep. We made an offer to the industry to set up a national organisation. We are already committed to collecting the money, but we could use it to put in place the framework of a national collection service. We are also willing to provide up to £500 million to set up the organisation. We would require a contribution from the industry but we could keep it to a minimum. At the moment, the industry feels that the Government should pay 100 per cent. of the costs, but we cannot do so under state aid rules. We feel that the industry should make some contribution. We are still discussing the issue and the offer is still open if the industry wishes to take it up.

The BCMS has experienced some problems with computer control. I understand the right hon. Gentleman's concern and we will try to ensure that the problems are addressed and rectified.

I share the right hon. Gentleman's optimism on biofuels. The range of biocrops potentially has a bright future. The 20p cut in tax on biodiesel has stimulated the market. Indeed, the local garage in the village of Winterton, where I live, sells biodiesel and I fill my diesel Land Rover with it. I am slightly disappointed that it is the same price as ordinary diesel—I thought that it might have been cheaper. Nevertheless, because it is an environmentally friendly fuel, I am keen to use it. Biofuels could have a greater role to play and a case could be made to consider further the fiscal incentives. As the sponsoring ministry, DEFRA wants to see a good future for biofuels. If there is a good argument for further fiscal inducements, we are prepared to consider them and make representations to the Treasury accordingly.

I thank the right hon. Gentleman for the way in which he put his case. The issues that we have discussed are important and DEFRA is trying to address them. It is an ongoing process, although I am encouraged by the latest signs of increases in some farming incomes in some sectors. There is a long way to go, but it is better to see figures going up rather than down.

Sitting suspended till Two o'clock.

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