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Lord Carter: My Lords, I am not sure, but I think it went broke.

Lord Lucas: My Lords, judging from the family's finances, I can believe it!

The Government welcome this wide-ranging report, and particularly its strong endorsement of the line which the Government have already been taking in the discussions in Brussels on the reform of the regime. My right honourable friend the Minister of Agriculture is even now discussing these very proposals with his fellow European Ministers at the Agriculture Council. There is a general consensus between industry and the Government that this regime is overdue for reform, and on the direction that that reform should take. The committee's report can only serve to strengthen my right honourable friend's hand in negotiations on the reform proposals, especially given the high regard in which such reports are held by our European colleagues. I do not intend to go into detail on the Commission's proposals. Instead, I would prefer to focus on those areas to which the committee addressed its comments in the report.

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On the subject of producer organisations, the Government fully accept the committee's conclusions concerning producer organisations. It is imperative that any proposals must not disadvantage UK producers. I am pleased to say that discussions in Brussels have indicated that producer groupings in the UK should, if they so wish, be able to satisfy the detailed eligibility criteria for the operating fund, and therefore have access to the money for market development.

We are pleased that under the current proposals producer organisations should have to raise 50 per cent. of their funds themselves, and that national governments should also have to contribute. I can tell the noble Lord, Lord Carter, that they will have to contribute. That could prove to be an effective brake on abuse. However, as many noble Lords--in particular the noble Lords, Lord Brain and Lord Reay--have pointed out, it will require the detail to be right for that to happen. The instinct of those producer organisations who have been misbehaving to date will be to find ways of continuing to do so. As the noble Lord, Lord Carter, pointed out, some producer organisations are not well set up at present to become marketing development organisations. There is a lot to be looked at in terms of the detail.

Our key concern, however, in respect of producer organisations is the Commission's insistence that virtually all output from a producer must be channelled through just one producer organisation. This is patently nonsense. The noble Lord, Lord Mackie of Benshie, said that the discipline produced by having to sell one's produce through a single producer organisation was well worthwhile. We agree with that. But the structure of our industry is not such that we can use a single producer organisation for all the output of one farm. We are pressing hard with support from other member states such as France, Germany and the Netherlands--I am pleased to say--to allow producer organisations to specialise in those areas where their expertise lies and to permit growers to choose their own marketing requirements for each product.

The noble Lord, Lord Brain, raised the subject of growers selling direct to supermarkets. Indeed that would apply to those running large pick-your-own operations and at the same time producing for the market as a whole. We see no good reason why such growers should have to change their present practices or miss out on the benefits of market development support. We shall be pressing to make sure that they do not.

On the question of the withdrawal system, the Government also agree with the conclusions that the committee has drawn concerning this. The Commission has stated that a key objective of the reform is to make the horticultural sector far more market-orientated. Yet this laudable objective cannot be fully achieved while the spectre of intervention remains to encourage over-production of goods for which there is no market. This helps no one, least of all the growers. It is expensive and wasteful and leads to the unacceptable destruction of food. In the discussions on the reform we have suggested that the proposed phased reductions in the maximum permitted volumes and values of

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withdrawals are but a step in the right direction. However, the proposed reforms are not to be sneezed at. The intervention limit of 10 per cent. of production for each product for each producer organisation will bite hard on the major areas of abuse. Greek nectarines have been mentioned several times. Over 70 per cent. are going into intervention. A reduction of that to 10 per cent. should have some salutary effect. That was mentioned by my noble friend Lord Middleton and indeed by the noble Duke, the Duke of Somerset, who asked what that amount of nectarines would look like loaded into five tonne trailers. My mathematics may be shaky, but I reckon that one could probably park the trailers at 20 yard intervals round the entire coastline of Great Britain and not have any gaps.

The proposed price reductions, however inadequate, are welcome too, but the Commission should go further and signal a complete end to this iniquitous system. In this context it is bizarre therefore that the Commission is also suggesting extending intervention to new products via the operating fund. I have to accept the suggestion from my noble friend Lord Stanley of Alderley that it should be extended to potatoes. We fully concur with the committee that this is not the most appropriate use of funding which would be better used to improve the market responsiveness of the industry. We are thankful, though, that its effects should be limited to 10 per cent. of the producer organisation's funds.

Many member states are opposed to the scale of the proposed reductions in intervention, although most understand the need for substantial reform. We want to see an end to intervention, but we recognise that this may not be realistically negotiable, at least in the short term. We may instead need to focus our efforts on ensuring that there is no dilution of the Commission's current proposals.

Lord Mackie of Benshie: My Lords, does the Minister mean that he will accept the ridiculously small reduction of 15 per cent. over five years? That will do no good at all. Will the Government press for a reduction of 15 per cent. a year, which would be much more effective?

Lord Lucas: My Lords, I do not disagree at all with the noble Lord, Lord Mackie of Benshie, in saying that 15 per cent. is far too little, but at least it is something. I think we have to recognise that we shall have to settle for the best that we can get. At the moment we are not optimistic that we shall be able to do better than the 15 per cent. that is currently on the table.

On the destruction of produce, this is an inevitable consequence of the present system. As we attack the root causes of the malaise, this unpleasant system will reduce. The committee has recommended that the Commission's proposals should be redrafted to address the environmental consequences of destruction but we are uneasy about pressing for such a provision to be included. Our position--one shared by the committee--is that the destruction of intervened produce with compensation from public funds should be avoided, and that, should the intervention system remain in place, it should be limited to levels which can be disposed of

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in more acceptable ways. Therefore, the Government are reluctant to propose anything which might weaken our stance on this fundamental point, particularly as the draft regulation already provides that the disposal of produce withdrawn from the market should respect the environment. Listening to the statistics quoted today, it immediately occurs to one that there ought to be a market for peach-fed pork. However, I suspect the problem is that the peaches which are being destroyed are not of a quality which pigs would deign to eat.

I turn to quality standards. The Government share the view expressed by the committee that quality standards are worthy of continued support as a means of ensuring freedom of trade provided that they are simple, reflect the needs of the marketplace and permit innovation. It is, therefore, essential for a degree of flexibility to be built into the standards. We believe that the proposed adoption of the UNECE standards by the European Union will be a worthwhile change in this regard.

The committee has suggested that in the context of whether or not there should be derogations from the need to observe quality standards, the reference to,

    "products traditionally consumed locally"
should be clarified with a view to establishing that this should simply mean any product which is locally produced for consumption in a specified area. That is something we have been attempting to clarify further in discussions and it appears that the view of the Commission is very similar to that of your Lordships. I hope that that gives some comfort to the noble Lord, Lord Wade, the noble Duke, the Duke of Somerset, and my noble friend Lord Reay who mentioned that problem. The saving grace in this part of the Commission's proposals is, I believe, the inclusion of a provision for all such derogations to be approved by management committee procedure.

I turn to the question of trade which exercised the noble Lord, Lord Mackie of Benshie. The Commission's reform proposals do little more than consolidate the existing GATT/Third Country Trade agreements into the draft framework regulation. One particular aspect of these agreements is the entry price system, which progressively succeeded the old reference price system from 1st January last year.

The committee has recommended that imports of soft fruit from Eastern European countries should also be subject to an entry price system since this would provide more flexible control on imports than a system of reference prices. The Government have previously said that they would support such an approach, although this is something to be pursued in the context of the current negotiations between the Community and the countries concerned, rather than as part of the reform of the fruit and vegetables regime. The committee has also recommended that the reductions in volume and value of export refunds under the GATT should signal the phasing out of this form of subsidy. This is something with which the Government wholeheartedly concur. But I must say that this is a view shared by very few other member states.

Lastly, I turn to the question of fraud. I think that "fraud" is rather an inadequate word for what is going on; I think that "pillage" might be a better description.

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Clearly, where the disbursement of public funds is concerned it is essential that there are adequate controls in place to reduce the potential for abuse and to ensure proper compliance with rules.

The recent European Court of Auditors report highlighted, to put it mildly, serious shortcomings in the financial controls operated within the Community under the existing regime. It is for these reasons that we share the committee's support for the appointment of a corps of inspectors, and welcome its endorsement of our proposal that producer organisations should be required to pay a security in respect of any advance funding they receive via the operational fund, and that they should be required to contribute to that fund. This will help guarantee rather more stringent financial controls across the whole Community--something which has, I regret to say, not always been a feature of the regime in the past.

I am grateful to the noble Lord, Lord Middleton, and to those other noble Lords who have spoken during the debate. These contributions, together with your Lordships' committee's effective and thorough analysis of the regime, will assist us greatly in discussions on the reform of the regime, and serve as a point of reference during the subsequent discussions on the precise implementing regulations.

If, in the 15 minutes that I have allowed myself, I have not answered all the questions raised today, I shall read Hansard and write to noble Lords concerned.

5.34 p.m.

Lord Middleton: My Lords, I, too, am grateful to noble Lords who have taken part in the debate, a debate which has been notable for a high degree of unanimity on all sides of the House. I very much appreciate the remarks of my noble friend Lord Lucas in giving the Government's response to our report, and the way in which the report has been received by the Government.

I, too, was fascinated by the picture painted by the noble Duke, the Duke of Somerset, of the magnitude of the fruit surplus in Greece. I remember in my extreme youth having to learn about the piling of Mount Pelion on Mount Ossa; and now we have to contemplate the piling of a peach mountain on top of that heap.

It is not appropriate at this stage of the debate to introduce fresh material. However, I noted that no speakers, except, briefly, the noble Lord, Lord Carter, referred to last month's report of the European Parliament on the proposed reform of the fruit and vegetables sector. I merely add as a footnote to the debate that among the recommendations of the European Parliament, so far from phasing out the intervention system, were that additional crops should be eligible, that the maximum level of intervention that a producer organisation is allowed should be raised, and that the European Community should pick up a larger share of the bill. Like other noble Lords who have spoken, I fear that the way to the reform of the common agricultural policy will not be a smooth one.

On Question, Motion agreed to.

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