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Baroness Chalker of Wallasey: I apologise to the noble Lord for intervening but I wish to make sure that he and I understand exactly the same point.

My comment about the following five years concerns the fact that there should be no change in the memorandum and articles of the foundation—the objectives. That may be the area in which the Government should have that reserve. But I do not believe that any foundation would be terribly happy, having taken the successor company into the foundation, to have the Government watching over it at every turn. That would not be much better than the current situation which we seek to improve.

When we spoke of a five-year watching brief over the memorandum and articles of association of the foundation, or indeed the specific social and developmental objectives, that was the bottom line. I do not believe that it would be right for the Government to interfere with the work of the foundation, even though they may be one of the members of the foundation in the future. However, I shall consider carefully all our debates and make sure that that factor is clear beyond peradventure.

Lord Judd: I thank the Minister for that observation. However, perhaps I may ask again. It is always good for all of us to read what we said in Hansard, albeit somewhat inhibiting. However, to read what she said will increase anxiety. She states, on the one hand, this and, on the other hand, that. She states that, on the one hand, the Government will keep an eye on things and make sure that everything goes the intended way for at least five years; but, on the other hand, the Government are anxious not to spell out or reveal any specific arrangements to ensure that that is so. We who are unashamedly doubting Thomases want not only to hear the intention but to see the mechanism that will be available. The Minister has said nothing that has reassured us on that.

Regarding the pension fund and the contributions holiday, the Minister skirted round a problem which causes anxiety. In my informal contacts with Crown Agents, I find it interesting that at all levels of senior management and staff there is a shared view that they want a strong future together. There seems to be an enlightened, shared view that one of the advantages of the contributions holiday is that resources were available

23 Mar 1995 : Column 1355

which could put the enterprise in a strong position to face the future with regard to finance, necessary restructuring, and so on. The anxiety is that any undue financial obligations which the new arrangements inherit will be at the expense of such essential operation. Therefore it is important for the Crown Agents—I am sure that the Minister will consider the issue; I hope that she will come back with convincing observations at Report stage—to have strong reassurance on that point. I detect that there is real anxiety on that score.

My last point relates to the issue of charitable status. The Minister said today that that would be up to the foundation to decide. I am sure that the Committee realises that that factor is central to what disturbs us. There is a big difference between being a charity and not being a charity. If we wish to know what we are making possible for the future of the Crown Agents, this is the time at which we should be clear as to whether the body will be a charity. It has tremendous bearing on what we do now.

To state that the Government will have available a guiding hand on the tiller if things begin to go off course but also that it will be up to the foundation to decide whether it will be a charity seems to be having all things all ways. Some clarification on the point at Report stage will be immensely helpful.

I conclude by saying that it is always good to have exchanges with the Minister. I enjoy them more when they relate to issues on which we broadly see eye to eye—the challenges of humanitarian assistance and development, and so on. I find it uncomfortable when I am not reassured by the position that she takes. In a complex way, I find myself more uncomfortable because I am usually reassured by her. In the exchanges between the noble Lord, Lord Rea, and the Minister, I felt that the strange element in the relationship was that she was very persuasive yet she did not persuade. It was an interesting contrast between style and substance. That aspect slightly worries us on this side of the House. We hope that we can help to persuade the Minister by putting forward arguments and suggestions regarding arrangements which underwrite the observations that she makes.

I hope that some way down the road we shall not be saying, "Here we are with another Minister and a foundation that we did not envisage in those exchanges in March 1995. And if only we and the Minister, who shared so much, had at that stage buttoned up the position, we would not be in this situation". I hope that we shall not face such a predicament.

I have heard what the Minister said; we shall consider it hard. I hope that she will consider carefully what we said. We may return to some of the issues at Report stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 7 and 8 not moved.]

Clause 2 agreed to.

Clause 3 [Initial Government holding in the successor company]:

[Amendment No. 9 not moved.]

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Clause 3 agreed to.

Clauses 4 and 5 agreed to.

Clause 6 [Use of "Crown Agents" as part of company name]:

[Amendments Nos. 10 and 11 not moved.]

Clause 6 agreed to.

Clauses 7 to 12 agreed to.

Clause 13 [Consequential amendments and repeals]:

[Amendment No. 12 not moved.]

Clause 13 agreed to.

Remaining clauses agreed to.

Schedule 1 agreed to.

[Amendment No. 13 not moved.]

Remaining schedule agreed to.

House resumed: Bill reported without amendment.

Royal Assent

The Deputy Speaker (Lord Skelmersdale): My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Acts:

Consolidated Fund Act,

South Africa Act.

Sugar Regime: Select Committee Report

6 p.m.

Lord Middleton rose to move, That this House takes note of the Report of the European Communities Committee on the Reform of the EC Sugar Regime (Fourth Report, HL Paper 28).

The noble Lord said: My Lords, the sugar regime within the common agricultural policy remains virtually unchanged since it was introduced 27 years ago. The reforms which are considered in our report are those proposed by the Commission and, as drafted, will have the effect only of ensuring that the Community can perform its obligations under the GATT agreement. The proposals were not finalised until late November last year and the Council has given them only preliminary consideration. Sub-committee D's inquiry was carried out so that our report on the regime and on the reform proposals could be made before decisions were taken in Council.

During our inquiry we had the advantage of the expert assistance of Mr. Ian Sturgess of the Department of Land Economy at Cambridge, as our specialist adviser. Our thanks are due to the many witnesses who gave evidence, both oral and written, and I am grateful for the highly professional work of our Clerk, Mr. Mitchell, and for the support of my colleagues.

It will be apparent from our conclusions that we consider the Commission's proposals to be inadequate. The regime is overdue for reform, with or without the GATT agreement. The fact that these GATT-driven proposed changes are the minimum necessary demonstrates once again the painfully slow path towards CAP reform being taken by the Community.

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The details of the existing sugar regime are quite complicated and are set out in Part 2 of the report. The main features are: price setting, import levies, production quotas and export refunds. Sugar within the Community is produced from beet grown under a system of national quotas. Annual output of white sugar under the system is about 16.2 million tonnes. In the UK production and marketing are organised by British Sugar, which allocates the national quota among growers and owns the refineries. The regime also undertakes under the Sugar Protocol of the Lomé Convention to buy and import, levy free and at a guaranteed price, about 1.3 million tonnes of raw cane sugar from certain African, Caribbean and Pacific states and India. About 85 per cent. of the ACP quota is refined in the UK by Tate & Lyle.

Under the regime, market prices are supported by intervention prices which are set both for raw cane sugar and for white beet sugar at a level normally well above world prices. Intervention prices are maintained by export restitutions.

Surplus sugar in the Community has not been stored, thereby creating extensive sugar mountains, but it has been dumped onto the world market at prices subsidised by the producers themselves by means of levies. The regime is therefore considered to have been budget-neutral, which explains the lack of pressure for reform in contrast to that on the other CAP regulated commodities, such as milk, beef, grain, oil and protein crops.

There is something to be said for a system which makes relatively small demands on the Community budget, which has guaranteed a regular supply to consumers, which has made the sugar beet crop one of the most profitable for growers and which has maintained a stable and prosperous countryside in many parts of the Community.

In the UK both beet growing and processing have become very efficient and productive in recent years. Much money has been invested in the beet industry and employment created, both directly and in the ancillary industries.

Raw cane sugar imports have provided an assured market to certain third world countries whose economies might collapse without that outlet. Where we have a high level of investment in a thriving and efficient industry—as is certainly the case in the UK—we must have very good reasons for recommending policies which might upset a complex industrial structure. We have therefore to look at the effect of the present sugar regime.

First, the quota allocation has been more than generous, so that, with the exception of Portugal and the UK, all member states have quotas which meet or exceed the amount they consume. Taking account of cane imports, the Community currently produces some 17.8 million tonnes of which it consumes 11.9 million tonnes. The balance of 5.9 million tonnes is for export, the greater part of which is subsidised. This dumping amounts to more than 25 per cent. of the whole of the world free market in sugar.

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Secondly, over-production and subsidised exports from the Community have a depressing effect on the world sugar market. Estimates vary between a 5 per cent. and a 20 per cent. lowering effect on world prices, which is not helpful to the economies of cane sugar-producing countries outside the Lomé Convention.

Thirdly, sugar quotas are handed out to member states irrespective of whether they are geologically or climatically suited to beet growing. Despite national grant aids, Italy and Spain can barely meet their national quotas. So the system does little to encourage efficient production.

Fourthly, the EU intervention price for sugar over the past 15 years has on average been about double the world price. Consumers in the Community therefore pay very dearly for stable prices and secure supplies. For industrial sugar users, high input prices mean reduced competitiveness.

Fifthly, the Community's beet price paid to producers has to be high enough to pay for levies which go to pay for the export restitutions. In effect, therefore, it is the consumers who pay ultimately for the over-production and subsequent dumping on the world market.

Sixthly, it is arguable whether it is beneficial in the long run by such means as the Lomé Convention artificially to stimulate production in the ACP countries, thereby locking them into cane growing and making them economically dependent on one crop.

Lastly, enlargement of the EU to include the central and eastern European countries is high on the Community's agenda. In our October debate on our report on trade with eastern Europe it was clear that any strategy for enlargement that was not based on thorough reform of the CAP would be futile. It would be quite unrealistic to suppose that the EU's current sugar regime, even modified by the proposals under review, could be extended to cover the large potential beet production in Eastern Europe.

For all those reasons, there is a powerful case for reform of the sugar regime. The questions, therefore, are: how far do the Commission's proposals satisfy the Community's obligations under GATT? How far do they go to achieve the kind of radical reform that we have so often called for, now and in the past? Our report concludes that the answer to the first question is: most of the way; the answer to the second is: not at all.

The 1994 GATT agreement on agriculture covers the period 1995 to 2000 and does not challenge the system of quotas and guaranteed prices. The Community's obligations under the agreement fall under three headings: domestic support; market access; and export competition. Under all these headings the obligations are already met, or will be met, without difficulty.

However, the GATT requirement that the present variable import levy will be replaced by a tariff, to be reduced over five years, will have the effect of drawing the EU sugar market more closely to the world market. This could mean that, towards the year 2000, some Community countries will be obliged to import, or the Community will have to reduce its support prices. The Commission proposes that provision should be made to

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enable beet quota levels to be reduced year by year to stay within the GATT commitments. But annual adjustments will not provide a sound base for long-term investment in the industry.

In addition, the proposals are that storage payments on what is known as C sugar should be discontinued; that preferential imports of raw cane sugar to Community refineries should be guaranteed; and, lastly, that national aids to the beet sector in Spain, Germany and north Italy should be phased out while allowing a 50 per cent. reduction only for the rest of Italy.

We conclude that, while we endorse the last three of the Commission's proposals—except for the concession to Italy—we take the view that the proposals, as a package, amount to no more than minor modifications to the existing regime. They amount to the bare minimum that is necessary to perform the EU's GATT obligations up to the year 2000. The opportunity to reform the sugar regime has not been seized. As we say in Part 5 of the report, which summarises the opinion of the committee, by continuing to insulate prices within the EU from the forces of the world market, the regime is a major source of instability in world prices. The quota reductions proposed by the Commission will not come near the 20 per cent. reduction, which would still leave the EU self-sufficient in sugar. There are no specific proposals for a reduction in export subsidies, and no concessions are made to the increasing demand for sugar substitutes.

Most importantly, consumer interests appear to be totally disregarded and the challenge presented by the future accession of the CEE countries is ignored. As we say at the end of our report, the adverse effects of the sugar regime on consumers and users, on world trade and on economic efficiency should be tackled by phased price cuts and with, where appropriate, phased compensation to growers. Substantial cuts should be made in the quotas, so as to penalise high-cost production, and they should be planned now, before they become inevitable. We also put forward the suggestion that, while a quota system persists, serious consideration should be given to mechanisms for making the quotas tradable among growers of sugar beet.

I am sorry to end on a rather sour note, by saying that my committee found the Commission's arguments for justifying inertia to be unconvincing and unsubstantiated. I beg to move.

Moved, That this House takes note of the Report of the European Communities Committee on the Reform of the EC Sugar Regime (Fourth Report, HL Paper 28).—(Lord Middleton.)

6.13 p.m.

Lord Mottistone: My Lords, I should like to thank my noble friend Lord Middleton for so clearly introducing the report and for so clearly explaining the problem that the European Community sugar policy presents both to other producers in the world and to its own consumers. I have to declare an interest as a parliamentary adviser to the Biscuit, Cake, Chocolate & Confectionery Alliance, which in its turn advises me and

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which is a leading member of the United Kingdom Industrial Sugar Users Group, which gave important evidence to Sub-committee D.

It was my privilege to be a member of that sub-committee from the mid-1970s to the mid-1980s. During that time one of our important reports was on EC sugar policy, in March 1980. I am delighted to see that the noble Lord, Lord Mackie of Benshie, is to speak later, because he was also a member of that sub-committee at the time in question. This time I hope that the noble Lord agrees with much of what I have to say.

Our recommendations at that time, which included a reduction in prices and a reduction in production, were very similar to those of today—15 years later. In 1980, the Community was also castigated for a deliberate policy of high prices towards other sugar exporters, which it was stated appeared to be one of selfishness and cynicism. My noble friend Lord Middleton did not actually use those words, but much of what he said would endorse that earlier report. Indeed, that is reflected in paragraph 75 of the report that we are now debating.

Turning to the report, it is particularly worth noting the written part of the Tate & Lyle evidence on pages 34 and 35 of the Minutes of Evidence. It commits it, on the public record, to favouring a market-oriented reform of the regime and defines the way in which it believes such a reform can be achieved without damaging its competitive position. Clearly Tate & Lyle would not say that if it thought that the reform would adversely affect the market for ACP sugar producers.

On another point, I understand that it is suggested that the users are benefiting by the price stability that is provided by the regime. The UK (UKISUG) representatives gave very effective answers to that in answering questions Nos. 190 to 197 on pages 58 and 59 of the Minutes of Evidence.

The sub-committee's conclusions are eminently sensible, and are consistent with a long series of reports on sugar in the Community by the Court of Auditors; in academic studies by Professor Tangermann and Professor Marsh; earlier opinions of the European Parliament; and the last UK Monopolies and Mergers Commission report, to name but a few. The real problem is to discover how we convert such a mass of common sense into something which is politically practicable.

The weight of lobbying on behalf of the status quo is indeed impressive. Clearly, the very facts that only 4 per cent. of arable farmers have a sugar quota and that having such a quota is so profitable mean that there are very prosperous farmers sharing and defending the privileged position that the regime provides for them. A number of the major European beet sugar processors are farmers' co-operatives—most notably, SudZucker, which owns Sucreries Tirlemont, as well as over a third of German production, and has been vertically integrating by buying German sugar, confectionery and ice-cream manufacturers. Such firms are unlikely to take a political line that would discomfit their members. Having said that, however, it is surprising that the other 96 per cent. of arable farmers are not vigorously demanding their share of this bonanza.

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Similarly, it is surprising that countries that would gain substantially from liberalisation, such as France, Belgium and the Netherlands, have been so complacent. Clearly, if farmers had property rights in their quotas and could sell these across national boundaries, as the sub-committee proposes, these countries and the UK would tend to accrue more quota since they are the sensible places to grow sugar beet in the European Union, and their farming industries are, in general, appropriately capitalised and have appropriately sized farms. One has to wonder at their reluctance actively to seek reform. Your Lordships may know that the Budget Committee of the European Parliament is seeking to include, in its Amendments Nos. 1 to 4, in the parliament's Agricultural Committee's opinion a proposal that the new regime should be for two years rather than for six years. I suggest that this is an excellent opportunity to keep the campaign for sugar reform going.

I strongly support that proposal. It would indeed be helpful if Her Majesty's Government were to agree to take up this point if and when the parliament carries it. Can my noble friend the Minister tell us whether our Government will take any action to support those amendments of the European Parliament and have plans for action thereafter?

In conclusion, I congratulate the Select Committee and its Sub-committee D on once again providing an excellent report. Above all, I pray—and I mean that I pray, because there does not seem to be any other way of achieving it—that the summary in paragraph 80 of the report becomes a reality well before the end of this century.

6.20 p.m.

Viscount Waverley: My Lords, I also should like to be associated with previous remarks in thanking the noble Lord, Lord Middleton, and his committee. Sugar is an important subject. There are many interested parties to the regime, not least Tate & Lyle. But I believe that the committee and the Minister understand their position. The committee accepted a written submission from the ACP London Sugar Group but did not examine the ACP issues in any great detail. I regret that. I believe that it might be helpful to address the concerns of ACP sugar producers. I am chairman of the Lomé Parliamentary Group and am committed to the welfare of our friends in the developing world.

Sugar producers are often responsible for the greater part of the foreign currency earnings of their countries. I need not remind your Lordships that those nations in most cases do not have a lot going for them in terms of revenues. We in Europe, as good citizens of the world, must ensure that equitable arrangements are entered into. Life can be hard when earnings from sugar are affected. If we abuse the trading advantage, it will come back to haunt the United Kingdom and our European partners.

There are two key issues with the ACP: agree additional quantities and determine what minimum price will be paid. However, price is the real issue. The

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European Union needs as much ACP sugar as possible but seeks to acquire those additional quantities at what may be unrealistic rates. In ACP countries there is a clear need for stable export earnings, which in any case have been substantially eroded since 1986. New arrangements are overdue. I urge HMG to use their all within Community institutions to secure additional access for the ACP at the full domestic rate. The UK is by far the most important market for ACP sugar, although France, Finland and Portugal are also significant customers.

It is appropriate to remind your Lordships that the protocol was signed when world market prices were between two or three times higher than today's equivalent. The protocol clearly states that:

    "the Community would undertake for an indefinite period to purchase and import specific quantities of cane sugar which originate in the ACP states and which these states undertake to deliver, at a price within the range of prices applicable within the Community".

The sugar protocol is about trade, not aid. It is an equitable trade instrument based on a long-standing mutual interdependence between ACP suppliers, the cane sugar refiners and European consumers. I submit that the price at which sugar is traded under the protocol is not a "privileged price", as the report concluded. It is based on the same price as we afford to our own farmers. Indeed, the amount is less because the price of sugar in the Community is ex-factory for EU producers, including the French overseas departments.

A key consideration is that ACP producers have to bear the costs of inland and ocean freight in transporting the sugar to the European markets. The socio-economic importance of the sugar protocol to the ACP sugar producers is immense. The sugar industry directly employs 35 per cent. of the active working population in Swaziland, 14 per cent. in Mauritius and more than 12 per cent. in Fiji. Sugar accounts for 97 per cent. of agricultural export earnings in Barbados, 98 per cent. in Fiji and 74 per cent. in Swaziland; and the sugar industry represents 30 per cent. of the total GDP of Guyana.

The report concluded that it is not in the long-term interests of the ACP to put all their eggs in one sugar basket. The ACP sugar industries understand that and continue to explore further possibilities for diversification. However, nothing is as suitable as growing sugar cane in the fragile ecosystems of the ACP countries.

European consumers pay a fair price for sugar and European taxpayers pay a relatively small and, more importantly, a very stable amount of money to run the policy. The total quantity agreed under the sugar protocol has not changed since 1974, although the refiners' needs have increased. There now exists in the EU a sizeable deficit of raw cane sugar for refining, mainly in Portugal. Since 1984 the ACP have asked that the import arrangements for Portugal, especially as regards the four traditional ACP suppliers to the Portuguese market, be included in the sugar protocol or a similar arrangement. But to date, despite repeated

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requests and joint declarations, the arrangements for Portugal have remained, in the vernacular, "transitional".

The ACP is not seeking to supply additional sugar for which there is no market or no need. The need has been clearly identified in the four refining member states, as explained in the Commission's proposals. Furthermore, we should recognise that the ACP is not trying to elbow aside domestic sugar production. It has only asked to supply what cannot be produced domestically, including the raw cane sugar produced in French overseas departments, although there is no doubt that the ACP states have more than enough sugar available fully to meet the required amount. There is now a very great advantage in GATT for European sugarbeet growers and processors to import as much ACP sugar as possible. The Minister will be aware of the technical reasons for that, arising from the agreements reached during the Uruguay Round of multilateral trade negotiations.

Just as the EU needs ACP sugar, there is a clear need in those countries for a stable level of export earnings from sugar, and those earnings have been eroded substantially since 1986. The new arrangements are now well overdue. I urge HMG to use the full weight of their power within the Community institutions to secure the additional access for the ACP at the full domestic price.

To conclude, I have two questions for the Minister. I have not given advance warning; so I would, of course, accept a written reply, although an answer now would be helpful. First, what is the criteria that the Commission will adopt in setting the price for the additional quantities? Secondly, will the Minister confirm that compensation will be paid to ACP sugar cane producers and associated industries if the Commission, in line with HMG policy, cuts sugar prices by 12 per cent. in the next three years?

6.30 p.m.

Lord Reay: My Lords, I strongly commend the report to anyone who happens to require an introduction to the arcane subject of the European Community's sugar regime. It provides a lucid exposition of the matter, which owes much to the masterly grasp of the subject possessed by our specialist adviser, Mr. Sturgess, of the Department of Land Economy at Cambridge University.

The European Community's sugar policy is one—I was going to say of hideous complexity; but in fact it possesses a certain beauty, so intricate is it; so balanced between so many interests; so discreet in its operation and so expensive in the elements from which it is constructed. As one discovers this extraordinary bureaucratic artefact, like some antique clock still in working order, one is tempted to say, "If it works, why fix it?" But, like an antique clock, while it can with loving care and expensive maintenance be made to function, cheaper and more efficient alternatives are today available.

In an era of CAP reform and of pressures for further reform, the European Community's sugar regime is an anomaly. Sugar has already become much more profitable than other crops, at the consumers' expense,

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with farmers, we heard, queueing up to apply for quota. The European Community consumer pays twice the world price for sugar and perhaps two-thirds above what he or she would pay if European Community and world prices were allowed to find their natural relationship. Such an expensive regime at once provokes competition and requires it to be suppressed. Import levies keep out imports. The development of alternative sweeteners is precluded by extending the quota regime. That is a particularly pernicious, even obscurantist, development, which prevents the consumer from benefiting from trends towards substitutes—perhaps healthier substitutes—and penalises European Community manufacturers in world markets. It is indeed one of the mysteries of the regime that it attracts so little odium.

As our report shows, despite sometime claims by the regime's protagonists that it is budget neutral, in fact it costs the budget around 1 billion ecu per year. But the bulk of the costs—including the costs of the export refund levy raised on B quota producers—are met by the consumer, not the taxpayer, as my noble friend Lord Middleton explained. Community sugar exports, of which over half are subsidised, now account for about a quarter of the world market. That depresses the world price and hence the incomes of farmers in other parts of the world, in particular developing countries, including ACP producers.

The solution to that waste of resources is a gradual reduction in support prices. If that were carried far enough the need for quotas would disappear. That is the route the Government would like to go down and I hope that they will not be pushed into abandoning that course prematurely because of insufficient support in the Council at the outset. The Commission proposes quota reductions as and when required to enable the Community to meet its agreed GATT commitments. As the government letter of response to the report notes,

    "a mechanism which would distribute quota cuts fairly and rationally between member states ... is very difficult to devise".

There are in fact strong arguments for excluding the United Kingdom from the first round of quota cuts. The UK is one of the few member states whose B quota is set as low as 10 per cent. of its A quota, yet whose beet sugar industry's efficiency, measured by yield, is today among the top four in the Community. But to demand exemption when sacrifices all round are being sought is of course not an easy diplomatic task. Moreover, Tate & Lyle, who would much prefer, I understand, an unregulated market in which cane was able to compete freely with beet, is adamant that the Commission's proposals unfairly penalise cane at the expense of beet and threaten cane refiners' supplies. The Government will need to press that case too.

Where I do not entirely go along with the committee is in the hopes it pins on making quotas transferable. I have objections on two grounds. First, by creating capital value, it would reinforce a vested interest. Secondly, I doubt that it is politically practicable. It would be a major innovation to allocate quotas to farmers rather than, as at present, to member states and, through member states, to processors. And I have difficulty in seeing governments agreeing to the sale of quotas across member states' boundaries; yet only if

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such transnational transfers are allowed can any serious improvement in efficiency be attained. It is between member states that levels of efficiency vary dramatically, not within member states. Within member states, processors must to some extent be free to offer quotas to the more efficient farmers. I should welcome the Minister's views on that subject, in particular his opinion on whether internationally tradeable quotas are feasible or even in what, or any, circumstances in his view desirable. I shall also listen closely to what my noble friend Lord Marlesford says, who, judging by the forceful case he put in committee, is likely to disagree with what I say.

The committee and the Government are, I believe, right to be much disappointed with the Commission's proposals. As the Government said in their reply,

    "inertia will send the wrong signals to producers",


    "do nothing to pave the way for the changes that the accession of Central and East European States would require".

Or, as the committee put it in paragraph 61,

    "The next 3-4 years offer a breathing space but unless the Community takes advantage of this by anticipating change it will again be defending a highly protective regime against further demands for liberalization".

The Government have a right to be proud of the role that they played in securing the reforms in the CAP which have already been achieved. I am inclined to agree with what the Minister of Agriculture said earlier this week in another place when he suggested that the supertanker (the CAP) has begun very slowly to respond to a change in course. But, as the Government are the first to recognise, nothing like enough has been achieved. The Government must persevere on all fronts, all guns blazing. They have right firmly on their side; and history; and Sub-Committee D.

6.37 p.m.

Lord Marlesford: My Lords, sugar is no novice to political controversy. I believe that Benjamin Disraeli, early in his career, once started a speech in another place with the words, "Sugar, Mr. Speaker", and was howled down and unable to continue. When I listened to the noble Viscount, Lord Waverley, with his most fluent advocacy of the cause of the cane sugar producers, I remembered reading not so many years ago that wonderful history of the Caribbean by Dr. Eric Williams in which he describes how the cane sugar lobby—the West Indies sugar lobby—was the strongest lobby there had ever been in the House of Commons, much stronger than the National Union of Mineworkers ever became. He also advises us that he discovered that in the early part of the 19th century, when the German chemists were working on the possibility of beet replacing cane as an economic source, the sugar lobby, pace the British Government, tried to bribe the German chemists to falsify their results. History tells us that it was an offer that was contemptuously discarded—obviously not an efficient effort at bribery.

Now we are faced with looking once again at a part of the common agricultural policy, and once again we are reminded that in so many ways the CAP is, as the

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Chinese once said of Hong Kong, a problem left over from history. There is a tremendous reluctance, as Marx used to teach us, that anyone should ever disturb a cosy status quo which they have enjoyed or are enjoying. What we have tried in an extremely modest way to do is to look a little bit at changes which may be able to be made.

I do not think there is ever any point in trying to reform the CAP by saying what it ought to be. We must always start from where it is and see whether we can, step by step, make some marginal improvements to it. I should like to focus—in this, my noble friend Lord Reay will not be surprised, although I hope that he will not be disappointed by what I say—on the recommendations in paragraph 78 of the sub-committee's report, which proposes that while sugar beet quotas exist they should be the transferable property of growers. That point was referred to by my noble friend Lord Middleton at the end of his speech and also by my noble friend Lord Mottistone, I felt with some approval. I shall take a few moments to put to your Lordships, and particularly to my noble friend the Minister, a little of the thinking, of some of us at least, behind the objective.

Presumably, one of the prime objects of CAP reform must be to reduce the cost of that policy to the consumer and to the taxpayer. That must mean that agriculture should be as efficient as possible, which means that subsidies through support prices should be as low as possible. That must mean that gradually the higher cost producers, and therefore those who are least efficient, should give way to the lower cost producers and those who are more efficient. Obviously—this is the basis of the CAP—that must involve a fair deal for the less efficient producers; those who might lose out. They must be compensated. Indeed, the whole CAP is based on compensating people, largely by letting them continue to do things that it is not economic for them to do.

If one starts from the proposition that what we do not want is further burdens on the taxpayer and the consumer, it is obvious that that compensation should not come directly from the taxpayer or the consumer. It should come from the more efficient producers. That is why I should like to see a system set up whereby the efficient producers paid the less efficient producers for selling them the right to produce. The great precedent for this, where it has worked really well, is in the case of milk quotas in this country.

Milk quotas were created from nothing when it was decided that it was necessary to limit milk production. Perhaps here I should declare an interest because, although I am a farmer who does not grow sugar beet, I am a farmer who produces milk. Milk quotas were created from nothing. They are an asset of considerable financial magnitude. Often the value of the milk quota is greater than the value of the land. An economist would ask the question—I would not presume to answer it: I wish the noble Lord, Lord Peston, were here to do so, but there are probably other noble Lords who can—who has actually created that financial asset; from whose pocket has it come? I would suggest that it is the same as the story of the Englishman who goes on holiday to a remote island where he is much esteemed.

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By the end of his holiday he writes a cheque to pay for everything that he has enjoyed. The cheque is treasured and passed from hand to hand but never cashed. The question is, "Who paid for the Englishman's holiday?" The answer is that no one pays. It is a very efficient way of creating an asset as a means of getting greater economic efficiency. Of course, had milk quotas been produced and not been made transferable, production would have been frozen into an inefficient and undesirable pattern. So transferability and tradability were absolutely crucial. The system has worked well.

We have already had a response from my right honourable friend the Minister of Agriculture to the sub-committee's report. It was a little lukewarm to our proposal for transferability of sugar beet quotas. First, there is a vested interest. Currently, the sugar beet quotas are effectively the property of the sugar producers. It is they who allocate to the farmers the right to produce sugar. It is not something which is of any particular value to them at the moment but they have a relatively arbitrary right, although in practice it continues to go to those who occupy that piece of land, to decide who produces sugar. I would suggest that it is perfectly practical to transfer that right, without disadvantaging the sugar refiners, to the sugar beet growers.

My right honourable friend said:

    "there is nothing in the existing Community rules to prevent a sugar processor, subject to any agreement he may have concluded with growers, from allocating contracts in such a way as to maximise efficiency".

That suggests—perhaps my noble friend will enlighten us—that it would be technically feasible and would not be against Community rules to do it. My right honourable friend the Minister also said:

    "To negotiate the necessary change in Community rules on quota allocation would obviously be difficult".

That is a challenge to the Government: any reform of the CAP is axiomatically difficult. My right honourable friend went on to make the following comment. This is a little more depressing. I have such high regard for my right honourable friend. It is so uncharacteristic that I almost wonder whether he wrote the words himself. He said:

    "Even if there were a prospect of achieving it, we incline to the view that assigning quotas to growers instead of (or in addition to) processors might increase the difficulty of doing so. It might also make more difficult the eventual abolition of the quota system, if that seemed obtainable at some future date".

That is a statement where the ideal is seen as the enemy of the practical. It is saying: how should the sugar regime —how should the CAP even—be reformed overall?—and do not let us take any step which might possibly hazard that. That is not an approach to reform. I am saying that the more efficient we can make agricultural production within the CAP the lower, by definition, the price we have to pay to the producers and the lower, therefore, the subsidy; and in many cases the better it will be for the noble Viscount and his interest.

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I conclude by saying that I hope that the Government will take this seriously and perhaps move on to discussing the matter at least with their colleagues in Europe.

6.48 p.m.

Lord Mackie of Benshie: My Lords, I have enjoyed the debate, or parts of it, so far. I enjoyed the speech of the noble Lord, Lord Marlesford. He talked a certain amount of sense. I should like to open my remarks by congratulating the noble Lord, Lord Middleton, on his report. It bears all the signs of his long experience; the old fox—I beg his pardon—the old hand at work, taking in the practicalities of the political position, which is essential.

I take a slightly different standpoint from the noble Lord, Lord Mottistone, who has been advocating for years the rights of that wonderful, altruistic body, the manufacturers of biscuits and anything which uses sugar. To hear him speak, one would think that farmers were the most appalling profiteers, rolling in luxury, while the poor manufacturers were having a terrible time doing their duty—

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