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Lord Wyatt of Weeford: My Lords, is the Minister aware that every answer she has given today increases the disquiet of the House? Is it not absurd to be thinking of handing over any area of one of the most famous administrative centres in the entire world to the private sector?

Baroness Miller of Hendon: My Lords, I am very surprised and indeed sorry that the noble Lord feels any

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disquiet regarding what I said. It is certainly not my intention to make anyone unhappy; indeed, I always try to make people happy if I can. As I tried to say, it is for individual departments to consider the future of their Whitehall buildings. There are advantages in the PFI but any proposals will be subject to normal planning procedures and planning policy as well as all the necessary guidance on historic buildings and other matters. I can certainly say that this Government very much protect the heritage of all of our buildings.

Viscount Mountgarret : My Lords, am I right in thinking that some time ago Members of both Houses of Parliament were desperately short of offices and other accommodation? If that is the case, why is part of Whitehall being converted for a use other than that of parliamentary business? At the eastern end of the Palace of Westminster there seem to be major developments. Indeed it appears that New Scotland Yard is being used for government purposes.

Baroness Miller of Hendon: My Lords, I am sorry that I cannot give a particularly satisfactory answer to my noble friend. I do not have any information about that, but I shall most certainly find out.

Lord Carmichael of Kelvingrove: My Lords, it is slightly worrying that in all her replies the noble Baroness has not given any reassurance as regards the future of Dover House in Whitehall. That is important to many people in the Scottish Office.

Baroness Miller of Hendon: My Lords, I know of no plans. I have said that we have heard of no plans. I have not been informed of anything in that regard. As far as I am concerned, there are no plans in that regard.

Lord Campbell of Alloway: My Lords, I am a little lost. Am I right in saying--as I understand the Question--that the Government do not consider the Treasury "suitable for partial conversion"? Am I right in saying that they do not consider anything else suitable for partial conversion? Is that the answer to the Question?

Baroness Miller of Hendon: My Lords, I should make clear something that perhaps I have not made clear--

Noble Lords: Oh!

Baroness Miller of Hendon: I am sorry if noble Lords think I may have misled them in some way. The position as regards the Treasury building is different from that of other buildings to which the noble Lord, Lord Richard, referred. I shall read my brief exactly to make the position clear to noble Lords. On 13th September the Treasury announced that it had decided to appoint Exchequer Partnership plc to redevelop its headquarters in Whitehall. This imaginative bid breaks new ground--

Noble Lords: Oh!

Baroness Miller of Hendon: Noble Lords may well laugh, but it most definitely is an imaginative bid. It

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will break new ground as regards the private finance initiative. It offers good value for money for the taxpayer which we on this side of the House are particularly keen to achieve, and it provides modern, efficient office accommodation for the Treasury which is very necessary. Negotiations with Exchequer Partnership plc are continuing. Obviously at this stage, for commercial reasons, it would be premature to reveal further details. However, the Treasury expects to sign heads of terms shortly and further information will be provided then. I am sorry that I did not make clear that that position was different from the general position I discussed subsequently.

Lord Mackie of Benshie: My Lords, the noble Baroness said there were no plans as regards Dover House. Does that mean that if the Scottish Office wants to get rid of the building, it can put it up for sale, or let it, for some imaginative proposal and the Government would have no objection in principle?

Baroness Miller of Hendon: My Lords, since 1st April it has been for individual--

Noble Lords: Oh!

Baroness Miller of Hendon: I accept that noble Lords opposite find that date humorous. I agree that it is an unfortunate date to have to announce. However, since 1st April it has been for individual departments to consider the future of their Whitehall buildings. I can inform the noble Lord, Lord Mackie, that it is a matter for each individual department. Any proposals would be subject to normal planning procedures and planning policy--I can do no better than repeat what I have said--and would take into account guidance as regards historic buildings and other matters.

Lord Wallace of Saltaire: My Lords, will the Minister confirm that one possible use for those parts of the Treasury buildings which the Treasury will no longer need is as residential and hotel accommodation? Will the Minister also confirm--as she said in a previous answer--that under the private finance initiative the Government consider property to be a depreciating asset whereas most of us were brought up to understand that property was an appreciating asset which one sells only when one is in financial distress?

Baroness Miller of Hendon: My Lords, I am not in a position to confirm what the noble Lord has just asked. However, I can inform the House that an announcement will be made shortly by Sir Terry Burns who is the highly respected chairman of the Treasury Management Board. Negotiations over the heads of terms regarding the Treasury building with the proposed private sector partner are currently in progress. For obvious commercial reasons it would not be in the Government's interest to make any further comment or announcement at this time.

Lord Mowbray and Stourton: My Lords, I do not wish to add to the misery of the noble Baroness but

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is it not time for the Government as landlord and active owner of all these places to call a halt to these rumours? A few months ago we were told that Admiralty Arch was to be sold off. Shall we be told next week that the Palais de Danse will buy the Banqueting Hall? I say with great respect that it is rather frightening that all these lovely buildings which have been designed for a purpose are being treated in this way.

Baroness Miller of Hendon: My Lords, I have spoken at length about the Treasury building but other than that building there are no further plans in this regard.

Baroness Hayman: My Lords, is the Minister aware that her paean of praise for the PFI rings strangely untrue to people working in the National Health Service? On the issue of value for money, would it not be sensible to have an investigation and study undertaken by the Audit Commission on the value for money of the PFI in the NHS before the Government embark on any imaginative PFI schemes elsewhere?

Baroness Miller of Hendon: My Lords, I think the noble Baroness will agree with me that that matter is wide of the Question.

Baroness Park of Monmouth: My Lords, I too wish to be clear about this. Are we really saying that private finance initiatives, or any other such initiative, may be taken by individual government departments and not referred in any way to Parliament? This is a national issue. We are talking about buildings that belong to the nation. I am sorry but I find it extremely difficult to understand how one can justify the fate of a building resting in the hands of a particular department at a particular moment in time.

Baroness Miller of Hendon: My Lords, as I said, there are no plans in this regard in relation to other buildings. I have nothing further to add.

Business of the House

3.7 p.m.

The Lord Privy Seal (Viscount Cranborne): My Lords, I beg to move the Motion standing in my name on the Order Paper.

Moved, That Standing Order 38 (Arrangement of the Order Paper) be dispensed with on Wednesday 16th October to enable the Public Order (Amendment) Bill to be taken before the Motion standing in the name of the Lord Avebury, and that Standing Order 44 (No two stages of a Bill to be taken on one day) be likewise dispensed with to enable the remaining stages of the Bill to be taken that day.--(Viscount Cranborne.)

On Question, Motion agreed to.

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EU Enlargement and CAP Reform: ECC Report

3.8 p.m.

Lord Middleton rose to move, That this House take note of the Report of the European Communities Committee on Enlargement and Common Agricultural Policy Reform (12th Report, HL Paper 92).

The noble Lord said: My Lords, I begin by declaring an interest in the common agricultural policy in that I am a director of farming companies in receipt of various payments under CAP schemes. Further, I should explain that the word "enlargement" in this report refers to the enlargement of the European Union to include 10 countries which have applied to join. Those countries are Poland, Hungary, the Czech Republic, the Slovak Republic, Bulgaria, Romania, Slovenia and the three Baltic states: Lithuania, Latvia and Estonia.

Last December in his Statement to Parliament on the Madrid European Council my right honourable friend the Prime Minister said:

    "I now refer to enlargement. Ahead even of prosperity, the European Union exists to provide security and stability for the peoples of Europe. For that reason, I believe that enlargement is the most important task facing the European Union. Having demolished the iron curtain, we must never again have a dividing line running through the middle of Europe... The Madrid Council considered reports from the Commission on the implications of enlargement for the European Union's policies, and those are profound. To be affordable and to be consistent with the EU's obligations under the general agreement on tariffs and trade, the common agricultural policy will have to be reformed when the Union enlarges".--[Official Report, Commons, 18/12/95; col. 1220.]
That Statement fully endorsed Sub-Committee D's 1994 report to this House on the association agreements between the EU and the central and eastern European countries. Early on in that inquiry we recognised that East-West trade was only a small part, although an important one, of the problems that had to be tackled before any possible accession by those countries. In that report we said that enlargement could not take place without substantial reform of the CAP.

At the 1994 Essen European Council it was recognised that something had to be done about an unreformed CAP which stood as an obstacle in the way of enlargement. The Commission was instructed to suggest a way forward. In consequence a strategy document was produced last autumn over the signature of the Agriculture Commissioner, Mr. Fischler. It is the report to last December's Madrid Council to which the Prime Minister referred in his Statement. It is on that paper that Sub-Committee D has based this year's inquiry; and it is the document referred to under the heading on page 7 of our report.

In asking the House to take note of the report, I wish to express my gratitude to my colleagues on Sub-Committee D and to the many individuals and organisations who provided evidence, both oral and written. I should like to pay tribute, too, to our specialist adviser, Professor John Marsh of Reading University whose advice has been invaluable, and to the excellent work of our clerk, Miss Mouland. Our thanks are due, too, to our embassies in Lithuania and Poland which looked after us so well during our visits this summer.

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I have much pleasure in being able to present this report to your Lordships before leaving Sub-Committee D because it is built on and rounds off three major reports on this theme made while I was chairman of Sub-Committee D. In our 1991 common agricultural policy report we criticised the Commission's plan for CAP reform, which was then known as the MacSharry proposal, and gave our opinion as to how such reform ought to be carried out. The reforms made in 1992 came some way towards that prescription, but not far enough. I have mentioned our 1994 report on the trade agreements with the CEEC and our conviction that no enlargement was possible without CAP reform. The present report contains echoes of our 1990 report on The Future of Rural Society.

I turn now to the Commission's strategy document, the subject of our inquiry. It is a very interesting paper because, as we say in our introduction on page 7, the Commission recognises for the first time in print that the 1992 CAP reforms did not go far enough. (Perhaps I may refer to the common agricultural policy as the CAP for brevity's sake.) The paper describes accurately the agricultural economies of the applicant countries and makes various proposals as to how those could be accommodated on enlargement of the EU.

On the question of CAP reform, the paper offers three options. The first is to maintain the status quo which, for reasons upon which I shall enlarge, it rightly rejects out of hand. The second option offers a policy for reform which coincides precisely with the prescription which our committee gave in our 1991 CAP reform report four years earlier. Our recommendations for CAP reform were, and still are, that there should be reductions in the levels of agricultural price support progressively to a set time scale towards world market prices and consequent reduction of export refund payments and import controls. We said that there had to be phasing out of the quotas. We recommended the unfastening of agricultural policy mechanisms from those relating to regional, social or environmental policies. We say that any compensation payments to farmers should be transitional and decoupled from production decisions. Those are repeated virtually word for word in the Commission's strategy paper, option 2.

However, the paper shrinks away from this option as being too radical. Nevertheless it offers a third option which would in effect reach the same target but much more slowly and through a process of evolution. During such a process it would retain some of the undesirable features of the current CAP. In addition, it makes some useful if vague proposals for what it calls an integrated rural policy.

Our report examines the paper in detail with particular attention to the pressures other than enlargement which give urgency to CAP reform. We make our own recommendations on how to do so building on those of the Commission. We were pleased throughout our inquiry to note how well our 1991 prescription for reform has stood the test of time. In its paper, the Commission comes some way along our recommended road. As we took evidence we noted how close to our ideas were the ideas of other witnesses, notably MAFF, our own National Farmers' Union and all the agriculture

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economists in this country and in the EU who gave evidence. Most member states and organisations within them will need persuading, although there are signs of enlightenment among some influential bodies both in Germany and in France.

We follow up our 1994 report by looking again at the East-West trade arrangements, which remain highly unsatisfactory and present another obstacle to the accession process. We attempt to put flesh on to the skeletal proposals for environmental and social measures which the Commission recognises must go along with a more rigorous European agricultural economic climate. We finish with the hope that, having dared to put a toe into the water of reform, the EU will take the plunge while the opportunity is there. The stability and prosperity of Europe depend upon it.

That is an outline of the report. Looking at its contents in a little more detail, Part 1 introduces the report and provides its background. Part 2 describes the Commission's agricultural strategy paper including the three options to which I have referred. Part 3 summarises the evidence. It is a long section which reflects the weight of evidence taken, and the desire of so many individuals and organisations to express their views. Part 4 presents the opinion of the committee which is summarised in Part 5.

In our opinion section we welcome the recognition by the Commission that the present CAP cannot be expected to accommodate the 10 applicant countries. We agree with the Commission that, with the expected increase in production in the CEECs added to that of the EU and the surpluses that would be engendered, an unchanged CAP would face increased budgetary costs and that this cannot be contemplated.

We agree with the Commission about the other pressures on CAP such as, first, the future round of WTO talks scheduled for 1999 which will be designed to take further the reductions in agricultural production and support begun in the Uruguay round. Secondly, there is the prospect of enlargement, which will create further problems in complying with GATT commitments, especially commitments on subsidised exports. Accession of CEE countries at high support levels will result in surpluses in an enlarged EU far in excess of those allowed to be exported with subsidy. Thirdly, as I have said, inclusion of the CEE countries would increase budget expenditure on an unreformed CAP. The Commission's strategy paper gives an estimate of 12 billion ecu per year. MAFF in evidence calculated an additional 15 billion ecu annually for Poland, Hungary and the Czech and Slovak republics alone on a 1996 draft agricultural budget of 41 billion ecu. Fourthly, the world demand situation provides an opportunity to be exploited (as is implicit in United States farm policy and its Farm Bill, now called the FAIR Act). A CAP which relies on supply management in isolation from the world market is ignoring this trend. Fifthly, the EU budget deal expires in 1999. Lastly, the CAP is urgently in need of reform anyway in its own right.

In our opinion section also we regret what seems to be a lack of enthusiasm on the part of the Commission and the Council to recognise the urgency of the need for

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reform. Applicant countries must know in advance how to plan their agricultural policies with confidence that the CAP is not a moving target.

We deplore the continuing restrictions on imports of agricultural produce to the EU from the CEECs under the Europe agreements.

In regard to the mechanisms of reform, I have indicated that we would have preferred option 2. Alas, this option would have little chance of getting through the European Council and undoubtedly that is why the paper shies away from it with a rather lame excuse about environmental and social risks. These risks we seek to minimise later in the opinion section.

Our committee recognised the political realities and refrained from baldly recommending the radical option and condemning out of hand the milder option 3. We did not want the report to be at once discarded in Brussels as insensitive, especially at the present time. We wanted our report to receive attention in Brussels as a constructive response to the strategy paper.

MAFF in evidence argued that the contrast between evolutionary and radical reforms was largely a false antithesis and that, logically pursued, the evolutionary and radical reform would in practice lead in the radical direction.

So we go along with the evolutionary approach in option 3 in so far as it advocates reduction in price support to world market levels. That would indeed be a giant stride along what we consider to be the right road to CAP reform. We say, however, that the CAP must start to get rid of supply management mechanisms. It should retain intervention only as a safety net and any compensatory payments should be short-term adjustment aids only.

Coupled with such reductions we agree with the Commission that there should be carefully planned policies to offer alternative sources of employment and other social objectives in rural areas. We say that these and environmental policies must be totally separated from agricultural policies. If you try to make one set of policies do the work of another set, you end up with confusion. We reject once again the concept of cross-compliance.

I read with interest a DGII publication which has just recently emerged from Brussels on the subject of compensation payments to farmers. DGII is the department which deals with economics and finance. The paper concludes that such benefits could be obtained more efficiently with "targeted instruments". "Structural measures", it says, "seem more appropriate". This is wholly in line with our opinion on the subject given in our report. So I hope that there will be close liaison between DGII and DGVI as the Commission deliberates on enlargement.

The Commission says at the end of its strategy paper that it is,

    "confident that the ideas presented [therein] will be fully and widely discussed within the Union and the CEECs".
We hope that this report will help to stimulate the discussion and lead to the formulation of legislative proposals which will promote speedy reform of the CAP.

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I was heartened three weeks ago listening to Mr. Fischler's Chef de Cabinet at a conference in which I had been asked to take part. He referred to the Commission's view that the 1992 CAP reforms were only the start of the process. He recognised the pressures for reform which I have described; he recognised the trend towards free agricultural trade, with less supply management and less price support. He agreed that there was a need for a safety net compensation for those European farmers who will be hit by CAP reform and the need for substantial support for rural economies. That is fine, but he gave no indication of any sense of urgency.

Our report expresses concern and, indeed, dismay that the Commission and Council have not produced any timetable for reform. We therefore end by saying that they must get a move on:

    "The Commission and the Agriculture Council must act with the utmost urgency to begin the process of reform".
If it is envisaged that accession by the CEECs should begin in the year 2000, discussions on detailed CAP reform are needed now.

When this House debated our 1994 report on trade with the CEECs and enlargement, I quoted our then ambassador when he spoke to me on a visit by members of our sub-committee to Budapest. I believe that Sir John Birch's words will bear repeating. They are even more relevant two years later. He said:

    "If 10 years ago we thought we could obtain a situation in Eastern Europe where the Russian army had withdrawn into Russia and where the CEE countries were moving into parliamentary systems of government, we should have paid billions of pounds to achieve it. Now we have got that situation for virtually nothing. For heaven's sake do not let us lose it".
I commend the Report to the House.

Moved, That this House take note of the Report of the European Communities Committee on Enlargement and Common Agricultural Policy Reform (12th Report, HL Paper 92).--(Lord Middleton.)

3.29 p.m.

Lord Reay: My Lords, as I follow my noble friend Lord Middleton on the speakers' list I should like to begin by paying a tribute to his tenure of the post of chairman of Sub-Committee D, which he relinquishes at the end of this Session. In fact the beginnings of his double tenure of the chairmanship reach back far further than my membership of the committee. However, I served long enough under his chairmanship, including visits to three central European countries, to learn to enjoy the experience immensely and to profit hugely along with my colleagues on the committee from the unique combination of qualities that he brought to the job.

My noble friend managed on the one hand to be unfailingly pleasant, enthusiastic and courteous; on the other hand, a steely ruthlessness ensured that he never lost his grip on the timetable, whether of a single morning's evidence session or of the report as a whole. And he never lost sight of the political objective. Needless to say, under his chairmanship one also wholly forgot party differences.

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My noble friend's overriding political objective was, above all, to maintain the independence and integrity of the committee. As he himself is wont proudly to point out, it is extremely unusual, if not unique, in Europe to find a parliamentary agricultural committee that calls for less public assistance to be given to farmers. My noble friend's wisdom, shrewdness and political sagacity are widely appreciated in this House and he will be sorely missed on Sub-Committee D.

I declare an interest as a landowner and director of an agricultural land-owning company.

In paragraph 1 of our report we acknowledge that the European Commission in its agricultural strategy paper has shown a change of heart towards CAP reform. For the first time it has shown recognition that the maintenance of the CAP in its present form, in the face of the challenges that lie ahead of it, is not a feasible option. We welcome that. The problem lies in the fact that it has not seen how to move from that general appreciation to a set of concrete proposals embodied in a strict timetable. When it was presented with an opportunity to take the all-important first step, as with the 1996 agricultural price review, it did not seize it. That inaction on the part of the Commission seems on the face of it curious as well as deplorable. With world prices recently standing well above CAP support prices for many products, notably food grains, now would have been a particularly good time to act. Support prices can more easily be reduced when they have less immediate relevance to farmers.

Yet the Commission has not acted. Why not? Could it be that the same world market conditions that provide an opportunity to start the process of reform have also removed the essential incentive to do so by relieving pressure on the Community budget? That would be an ironic conclusion to draw but, if true, provides perhaps just the latest illustration of how unforeseeable are the consequences of bureaucratic price fixing and detailed bureaucratic determination of agricultural policy generally. So the future world food supply situation has a bearing on the prospects for CAP reform.

The predictions are not unanimous. On the one hand there are those like Lester Brown of the United States who argues that rising demand for food in China, for example, will be responsible for much higher world food prices for years to come. On the other hand there are those like the experienced Mr. David Hadley of MAFF who, having heard all these predictions before and finding that they never amounted to very much for very long, observe that the underlying yield trend is still upwards without advances in biotechnology having yet had much of a chance to make a contribution and who therefore see little reason to expect world prices to remain above European Union prices beyond, say, 1997. If Mr. Hadley's view is closer to being the right one, there may never be a more propitious time to start introducing CAP reforms, or a time at which it can be done less painfully, than now.

Where is the impetus to come from? The Government, in their reply to the report, seem wholeheartedly to embrace virtually every one of the committee's conclusions. Their reply states unequivocally,

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    "The Government agrees that, following a period of adjustment, EU farmers should be expected to obtain the return for their production solely from the market and this should be on the basis of world prices ... there should be no need for supply management mechanisms and that intervention, if it remained, should revert to a purely 'safety net' role to deal with genuine market emergencies".
That view is also endorsed by, among others, consumer groups, manufacturers who are made uncompetitive by the high prices they have to pay for raw materials brought within the European Union, and those like horticulturalists, leading unprotected lives outside the CAP, who compete with subsidised producers of the same resources, for example land.

Is the desire to see a market-driven CAP unique to this country? Not, it appears, entirely. Perhaps our most glittering witness was the famous German agricultural economist, Professor Stefan Tangermann of Gottingen University. He arrived alone and kept the committee enthralled with one-and-a-half hours of lucid evidence delivered in English. He was plainly of the same fundamental view as ourselves. He described himself as an internationally minded economist who wished to see as many countries as possible living with world prices. He was in two minds as to whether he wanted to see any mechanism at all in operation to protect farmers from movements in world prices. He saw the political case for a safety net--he suggested that intervention prices might be set at a level of 75 per cent. of the moving average of world prices over the preceding five years--and proposed that farmers receive payments to enable them to adjust to lower world prices over a 15-year period.

Professor Tangermann pointed out that there were sectors within European agriculture which led the world in efficiency--he singled out pork and poultry producers--and which would be quite able to compete globally once they could be sure of not having to pay more than world market prices for their foodstuffs. In his view, even much Community cereal production, particularly of wheat, was competitive at world prices under normal market conditions. He said that in Germany, outside official circles, a debate was beginning and that there existed thinking reflecting the attitude found in farming circles in the United States that it was time government got out of the farmers' way.

Interestingly, he attributed the change in Commissioner Fischler's thinking (which has led the commissioner to acknowledge that further reform of the CAP is necessary) to French influence, reflecting the views of "elite" French farmers who feel confident they can produce for the world market if given a chance.

Sir David Naish, president of the NFU, confirmed that within COPA, the European umbrella organisation for farmers' unions, it was now permitted to talk about reform of the CAP whereas three years ago the idea would have been unmentionable. But outside officials circles, where it counts, in France or Germany, those views are not, or are not yet, allowed to be heard.

When questioned about German attitudes to the CAP, Mr. Stephen Wright, Under-Secretary at the Foreign and Commonwealth Office, had this to say:

    "The Germans are clearly very sensitive about the idea of reforming the CAP. It is not a subject that they discuss easily".

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Those words spoke volumes. It is political leadership that is lacking. It is not as though there had been any retreat, any resiling from the objective of European Union enlargement.

President Chirac, speaking last month in front of the Polish Parliament no less, pledged the support of France for the entry of what he termed "our sister country in the East" into the European Union by the year 2000. Yet plainly it would be preposterous to admit the CEE countries into a pre-reformed CAP.

The extension of milk quotas or set-aside, or of the highly artificial, costly and obscurantist restrictions of the sugar regime, to the countries of central and eastern Europe is a prospect too horrifying to contemplate. Yet what alternative to measures of supply control would there be were the high prices of the CAP to stimulate production way beyond the capacity of the domestic market to absorb and with GATT forbidding further access of subsidised export to the world market? It is not as if delay served any good purpose. Far from it. As my noble friend pointed out, acceding countries should know as soon as possible the type of CAP they are to be required to adopt. For one thing, the longer the CAP provides an example of protectionism in action the greater the danger of those countries proceeding to emulate it in miniature in their own economies. Indeed, we saw that process at work on our visit to Lithuania.

There is also the consideration emphasised to us by our MAFF witness, Mr. David Hadley. With reform now inevitable within a short and ever reducing time span and recognised at last by the Commission to be inevitable, the European Community is throwing away valuable time that could and should be spent paving the way for reform by explaining the necessity for it to Europe's farmers.

The European Union's enlargement to include the CEE countries and the present unreformed CAP reflect all the incompatibility of an irresistible force meeting an immovable object. Both remain on course for their dramatic, almost ordained, collision. All of us on the committee had no doubt: it is the object that must move. However, as the report makes clear and as my noble friend emphasised, European Union enlargement does not provide the only pressure for CAP reform. It is considered quite likely that the CAP may eventually produce surpluses that even present CAP restrictions may make it impossible to export. Beyond that, before the end of the decade, we have a new World Trade Organisation round which is certain to produce international pressure for further removal of CAP subsidies, particularly now that the United States in its latest farm Bill has embraced a further impressive dose of liberalisation for its farm sector.

There is a final reason why the CAP should be reformed--because it is a wasteful, expensive and inefficient policy that looks more and more anachronistic the more other parts of all economies are liberalised, privatised and freed from states' dependency. All political parties in this country seem now agreed that this is the age for smaller government. The time is fast approaching when governments need to start at least a partial withdrawal from agriculture too.

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3.42 p.m.

Baroness David: My Lords, I must first apologise to the House. I shall have to leave this debate at a quarter to five because I am chairing an all-party group at that time. I have explained that to the noble Lord, Lord Middleton. I hope very much to be back at any rate in time for the winding up of the debate and I shall read everything that I have missed.

First, I should like to echo everything that the noble Lord, Lord Reay, said about our chairman. He has very great knowledge and expertise which was invaluable to the committee. He has given us a very clear message. Reform is essential, and action should be taken now. The political reasons for turning down the more radical option, option 2, are understandable. But that does not mean that there should be silence now on immediate moves to get on with the evolution from the 1992 reforms. The disappointment at the recent reaction to the Commission's proposals to increase the tariff quotas which govern imports of agricultural produce from the CEECs is mentioned in our report. The Commission proposed an increase of 10 per cent. a year for five years, but in Council the opposition to that modest increase was such that it was reduced to 5 per cent. As we said, that does not bode well for future moves towards accession. It is agreed that politically accession of the CEECs is most desirable. They must be feeling frustrated and naturally complain of the moving target that the CAP seems to be.

In my speech I shall concentrate on Lithuania. I was lucky enough to be one of the delegation which went there. It is a country which I had not visited before and I found it a fascinating experience. Vilnius is an ancient city. The old parts are both interesting and attractive. There are many beautiful churches which are gradually being restored to their original use. One had been changed into a museum of atheism.

Our first day was spent in meetings at the Ministry of Agriculture with the Minister and two State Secretaries. The State Secretaries were civil servants. The Minister told us that they were working with the Czech Republic and Poland in preparation for membership of the WTO. He complained that agriculture in Lithuania was "oppressed" by restrictions of agricultural imports to the EU. That is a complaint that is made constantly and, it seems to me, with justification.

The collective farms were being privatised, and a process of restitution of land to former owners was under way. They suffered from shortages of finance and machinery, which the state could do little to remedy. They needed investment and aid from agricultural consultancies. They still saw their major markets as being in the East. Technological aid was coming from the West, but there was a need for bigger quota allocations from the EU so that their farmers could become accustomed to the standards required by this market. They said that an expansion of quotas would be seen as a gesture of goodwill to Lithuania for its important part in the fall of the former Soviet Union. The Minister asked for a period of time to prepare its agriculture for competition with the EU.

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State Secretary Stalianus described the forms of land restitution. To carry out the reform, 426 land reform units each employed five or six specialists and, at that time, 41 per cent. of the total land area had been measured and prepared for return. A 1994 law had established the legal basis for a market in land, but it was not developing as well as expected because few people wanted to buy. Foreign investors were permitted to lease land for up to 99 years. State Secretary Purvinskis explained that before land privatisation those working on the land had been specialists in certain aspects of the agricultural process. They found it now more difficult to adapt to management of the whole farm structure. The processing industry was suffering from under-investment and needed help. The PHARE programme was important in reinstating the vitality of that sector.

The impression at the end of that morning was of certain frustrations. They felt that the EU could be more understanding and that aid, in both advice and investment, was urgently needed.

Our meeting in the afternoon with the parliamentary agricultural committee I found a little depressing. The members were sceptical about accession to the EU and that scepticism was fuelled by the high subsidy levels for agriculture within the EU and with the tariff barriers which hindered imports from Lithuania. The EU, they thought, was more concerned to deal with its own surpluses than to welcome foreign trade. Therefore, they continued to look to the East to develop their markets. The chairman contrasted the attitude of the "philosophers" in Brussels, who promoted their case for accession, with the more realistic attitude of the farmers. They sought economic adjustment rather than the equalisation of legislation, and concluded that it would be a very long process.

Our next day was highly enjoyable. We got out into the country and met with representatives of local government of the Panevezys County. We discussed their area and their responsibilities. They told us that they exported dairy products, butter, cheese and milk powder to the West, but, again, found access to the European market very difficult. They stressed the importance of co-operation between producers and processors. But it appeared that the memory of the former co-operative structure acted as a disincentive to establishing that relationship.

We moved on to a dairy processing plant and it was fascinating. We were given a great welcome. The machinery was both old Soviet-supplied apparatus, and new machines. They were investing in new machinery as profits made it possible. They were keen to become modern and efficient. This project had in fact been set up jointly with the PHARE programme and ADAS to promote marketing techniques for agriculture. They were proud of their products and were extremely generous in pressing them on us: ice cream, ice lollies and sour cream were being prepared and packaged; curd rolls coated in chocolate; and cakes elaborately decorated. I thought that a liquid form of yoghurt was particularly good. When we left the dairy, I asked Professor Marsh whether he thought that it would

15 Oct 1996 : Column 1609

conform to EEC regulations and he said that it definitely would not. But I felt that they were making strenuous efforts.

We moved on to the Raguvele Agriculture Enterprise where Mr. and Mrs. Rimseviciai gave us a tour of their farmlands. They were working to reclaim land owned by her grandparents. It was a large property. They were being extremely enterprising. They had installed machinery to make bread and pasta from their stored grain. They made pasta for diabetics. There was a large orchard and good storage facilities. They had established a restaurant in a former manor house, where we had an excellent lunch. The sanitary arrangements would certainly not have come anywhere near western standards. We were impressed by their enterprise and energy; they had certainly "added value" to the raw materials their estate produced and I wish them well.

On our last morning we visited an open market and then a supermarket that had recently opened. We were surprised at the variety of vegetables, fruit and tinned produce on offer; there was a real choice. In a covered area there were two largely unrefrigerated areas, one selling cheese and cooked meats and the other raw meats. I tasted a really delicious pate, but to my disappointment, Professor Marsh advised me not to buy.

We were told that the fresh fruit and vegetables were imported from the other Baltic states and from the East. The supermarket was like any supermarket here. Eighty per cent. of its goods came from Lithuania. They made their own bread and cakes on the premises. We were rather surprised that we were allowed into some of the refrigerated areas, but I suppose we were rather special guests.

The impression we had at the end of our visit was what a huge task the CEEC countries had in transforming their states from communism into free democracies. In Lithuania we felt that the older politicians and farmers were not so enthusiastic as the younger politicians, civil servants and those in local government. The older ones hankered a bit for the past, where perhaps everything was simpler. Everyone there thought that the EU was not being as helpful as it could be because of the tariff barriers and the quotas and, above all, they thought that the CAP was a moving target--a natural resentment, one would think, and our recommendations deal with that. I hope that notice is taken of them and of the fears expressed.

The press coverage to our report was disappointing but at least the Farming News was enthusiastic, as was the letter to our ambassador from the Lithuanian Minister of Agriculture. He said that the report reflected the real situation of agriculture in that country.

Perhaps I can make one final point in relation to the integrated rural policy, which no one found easy to define. I would strongly support the recommendation in paragraph 113 of the report, which urges DG VI (agriculture) and DG XI (environment) to co-operate in achieving the necessary levels of harmonisation of activity. Co-operation between the directorates is extremely important.

3.52 p.m.

Lord Beaumont of Whitley: My Lords, I am the first

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speaker in this debate who was not a member of the committee and am therefore the first from outside to pay tribute to the report as such and to its introduction by the chairman. I do that wholeheartedly, though I do not necessarily agree with everything in the report.

The report's title is Enlargement and Common Agricultural Policy Reform. I hope your Lordships will forgive me if I take the opportunity to speak on what I regard as the basics of agricultural policy for this country and deal with enlargement only towards the end of my comments.

We were reminded in the report that the origin of the CAP lay in the need for food security and the price stability to support it. That was and probably still is a worthy aim. Twice in this century we have needed food security and, looking at the state of the world, it is impossible to say that we will not need it again. For a time, in the Cold War, we were tempted to think that any likely conflict would involve the kind of warfare in which food security was irrelevant. I do not know if we were right to think that, but it does not apply any longer. Moreover, I believe that a world run on sustainable lines--to which we are all now committed--means that there is a need for each country or each group of countries to be sustainable in themselves.

It is our misfortune in this country to be grossly over-populated. We must meet that situation with a population policy, and that has been widely neglected by politicians of all parties over a long period. I hasten to say that by a population policy I do not mean anything as Draconian as the policy applied in China. Those who are looking for a population policy would do well to consider the experience of the Indian state of Kerala. It started with the same kind of population increases as experienced by China but brought the increases down to the same situation as in China but all by voluntary and democratic means.

We must also continue to seek and maintain food security. The noble Lord, Lord Reay, touched on a matter discussed seriously in the report and taken up by various witnesses as to whether world prices for agricultural products will go up in the future. I still believe in the prices rise forecast by the World Watch team. The main argument against came from Mr. Hadley of MAFF, quoted in Section 13--that prices will not go up because, although there will be increased demand, those who are demanding will not have purchasing power. That is the most spine-chilling statement that I have seen for a long time. It is possible that Mr. Hadley is absolutely right. But the idea that the world is so appallingly run that we will permit mass starvation before we provide national and international finances to prevent it is one that I totally reject. If I say that that will happen only over my dead body, your Lordships may answer "probably". But I hope that it will also be over the dead body of the whole of the British Parliament.

If I and World Watch are right in our forecast of rising prices, we have at present a small window of opportunity of respite from intensive farming methods in which to put into place environmental policies.

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Environmental and agricultural policies should be integrated. That is another major matter which came up in the report. It is important that they should not be treated separately. We are beginning again to rediscover the importance of holistic policies. In that I agree with the evidence submitted on that subject by the RSPB.

The third strand of my comments this afternoon concerns the fact that I should like to see a growth of small mixed farms as a source of rural regeneration and a spur for the production of increased rural services, thus spilling over into the whole debate of rural policy, of which we may see more after the next Queen's Speech. Also, I wish to pay tribute to the Government's decision to ease the tax burden on rural shops. That is an immensely important step forward and absolutely necessary for the health of the countryside.

With regard to enlargement, I shall believe it when I see it. The European Union is more likely to shrink than expand in the near future. Some noble Lords will agree with some of the goals I have laid before the House and will say that food security and the holistic future for agriculture and the rural environment are worth while, but will see too many obstacles in the way in the shape of GATT, the WTO and other institutions. I agree with them that these form a massive barrier to a sane policy for British agriculture, but it is one which we must strive to overcome.

The report is a major contribution to the ongoing debate on what is one of the most important subjects which this country has to decide, and keep on deciding, year in, year out--what it is to do to keep its countryside and agriculture healthy and keep an agricultural policy which safeguards the security of this country and indeed of Europe.

4 p.m.

Lord Barber of Tewkesbury: My Lords, I, too, as a member of Sub-Committee D, wish to pay tribute to the noble Lord, Lord Middleton, and I endorse everything that has been said about him. I wish to mention another aptitude which, like all great chairmen, he has in great measure. I refer to his ability to make us enjoy all the sessions we have had with him. I also feel, because I leave Sub-Committee D at lunchtime tomorrow, that it would be proper for me to congratulate the noble Lord on the reports over which he has presided. They have been remarkable and the report before us is one of the most remarkable of all. It is remarkable for the perspectives which it reveals on issues which barely surface in the media. Where, for example, do you find any analysis of the depressing belief which comes through from the CEE countries that the EU is hardly bursting with enthusiasm to see them as members of the club?

Perhaps I may digress for a moment. When I came to your Lordships' House some years ago I had spent 10 years in that part of "quango land" where you were dead unless you had your policies fully explored in the public arena. When I came to your Lordships' House I was dismayed to find out how little circulation was granted to your Lordships' Select Committee reports. On some

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occasions there were not even press conferences to announce that they were there. I have spent a good deal of time in the past five years trying to publicise the merits of these remarkably valuable documents. I have even been to see the Clerk of the Parliaments. I gather that things are on the move and that the reports will be granted a much wider circulation than they have had in the past.

I anticipated that a number of noble Lords would wish to contribute to the debate so I decided that I would offer two perspectives which I think are important. One has been touched on and the other not at all. It is necessary to acknowledge fully the degree of hostility to further fundamental reforms on the part of some powerful member states. In previous years I believe that we did not take this point on board to the extent that was necessary. This hostility is irrespective of the CEEC accessions. A Member of the European Parliament, Mr. Gary Titley, who gave evidence to us, put it succinctly. He said:

    "there is no possibility of every Member State government supporting a radical reform which will bring them into conflict with their farming communities ... One government ... could veto the whole process".
The noble Lord, Lord Reay, referred to Germany. I was particularly dismayed--I was going to say outraged--by a letter we received from the French Embassy here. The letter said:

    "Some people see in the enlargement a means to question once again the basis of the CAP. This is not the case for France. It is not the case for the majority of the member states according to the first discussions which took place on this issue last year, nor for the Commission".
MAFF rather gloomily noted that some member states seemed reluctant to embrace the idea of change until the last possible minute.

We have already heard of Professor Stefan Tangermann, a quite remarkable man. I can put another slant on what we heard from the noble Lord, Lord Reay. Professor Tangermann and I were at Ditchley Park not long ago giving tongue at an international seminar. Some very interesting Franco-German attitudes to the CAP came out. Professor Tangermann was telling the seminar about his bond, which was a means of easing out of non-viable holdings aged and not very well off farmers. The Franco-German delegation was quite outraged. It said that far too many farmers had already left the industry and that measures were required to keep them in and not to encourage them to leave.

There is, too, the accompanying factor of the farm labour force. The Rural Development Commission has told us that since the 1992 reforms 5,000 farm jobs have disappeared in this country with another 20,000 in farm-related industries. There is also the factor, widespread within Europe, of the not fully employed members of the farming family at home who would be squeezed out on to the labour market under further pressure.

In the UK there may be some danger of believing that our farming community consists wholly of an elite desperate to say goodbye to the CAP and take on the world. If we believe that then we delude ourselves. For while our elite may be a bigger proportion than across

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the Channel, I have no doubt that the vast majority are extremely anxious about the prospect of a steady withdrawal of a support system that has generated large annual sums, often equal to or exceeding commercial farm revenue, and bestowed considerable capital assets like milk quota--for free--whose total value would put the National Lottery in the shade. I read the other day that a senior member of ADAS puts the milk quota figure--the money that has gone out into the farming community--at around £8 billion. Acknowledging that such a cosy system could not last indefinitely, it is total humbug to suggest that the harsher era to come will be welcomed enthusiastically. Perhaps confusion has arisen because there are many arable farmers who would not admit in public that they felt themselves to be incapable of surviving in a CAP-free world.

So, in the face of opposition, deep seated and in some countries politically powerful, the Commission is going to tread warily and may attempt to introduce change by skilfully fashioned stealth. But one of the main instruments to replace some of the CAP support is so stealthy that no one really knows what it is. The much quoted "integrated rural policy" sounds impressive but the nearest we came to a definition from the Commission was that it was concerned with,

    "the quality of life, social and ethical issues",
which I suppose could mean something if you think hard enough. I understand that Commissioner Fischler has arranged a conference in Cork next month where the subject will be debated, but one suspects that for a long time its structure, purposes and application will be obscure and only time will tell if it is to become a practical instrument rather than a useful piece of Euro-speak holding flannel.

I have laboured this issue of hostility to reform because it has been persistently and grossly underestimated by commentators in this country, although at least one, the City Editor of the Daily Telegraph, has now made up his mind. He wrote despairingly last week:

    "The CAP has proved impervious to logic, reform or even capping, and it is now far too deep-rooted to destroy".
And it is worth noting that there are now reports that even the forecasted reduction in arable aid payments for next year may be aborted. That is quite extraordinary. Perhaps, as the Council of Ministers decides that change is too awful to contemplate, we may have to rely on the US Department of Agriculture to arrange some reform through its battles against grain export subsidies. It is important to realise that it is the Commission which proposes and the Council of Ministers which disposes. A great deal of confusion has arisen from our failure to understand that.

But there is another issue which is also shrouded in uncertainty and lacks purposive analysis--the structure, shape and character of UK agriculture post CAP reform, assuming it comes about. If we can believe for a moment that after political blood-lettings in Brussels' corridors the CAP is reformed to meet eventual World Trade Organisation requirements, and direct support largely eliminated, we can also assume that very many farm holdings will drop below the profit line. The

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casualty list must be a heavy one. Just how many will depend almost wholly on where levels of parallel indirect support are pitched and how closely withdrawn grant is succeeded by new cushioning aids.

I am advised that some member states have organised themselves rather well to be recipients of indirect aid. Austria has virtually the whole of the country covered, and Germany one-third, with grant-attracting schemes.

As the golden days of arable aid fade away it becomes clear that we cannot rely on world prices, particularly for grain, rising to compensate in part. The recent euphoria on that score was gravely misplaced and we shall have to relearn that supply has a habit of swiftly catching up on demand so that above-average prices disappear. To sharpen up the realities, an international firm of farm accountants forecast last month that our UK farm profits were expected to fall by two-thirds in the near term and that the money-spinning days that had boosted profits since 1992 were coming to an end.

The likely picture emerging is, I think, distinctly opposite to that about which the noble Lord, Lord Beaumont of Whitley, spoke. I think that the likely picture is of fairly painful restructuring; of bigger farms, of more mechanisation, of fewer employees, of more contract and share-farming. Perhaps the age of farming partnerships through professional farming companies on a really impressive scale may be on the horizon because of the economies of scale so easily made available to the medium-sized operation.

Because of its specialised nature it would be absurd to attempt too close a parallel with the pig industry which has been outside the CAP in a grant and subsidy-free trading world for the past 30 or 40 years. But it is fascinating to look at an industry left to get on with it in the open market place which has, of necessity, organised itself to compete and which is continuing to develop a vertical integration all on its own, along with a highly standardised quality product. It is calculated that in five or six years' time, fewer than 250 units--corporate or family--will be supplying 80 per cent. of the annual output of around 15 million pigs worth over £1 billion, with the processors down to six, one of whom already provides 47 per cent. of bacon output. Survival for the smaller units will depend on finding a niche in that vertical structure where they can perform adequately. It is those self-same market pressures which will be pressing down on the other farm commodities. The pigs scenario will be different only in scale and time. Have we really faced up to that prospect of deep structural change and all that it implies in terms of the farming industry in this country and of the broad spread of the clutch of rural policies?

Let us take for example the land use issue of the marginal grain land: unless the world grain price was considerably and consistently above current levels, grain growing simply could not pay on large tracts of the Cotswolds, the thinner chalk downs, and the poorer sands and gravels. We could postulate an unsupported UK grain price resulting in significant areas of marginal land going out of cereals production. What it would be going into is anybody's guess. Extensive livestock grazing? Work out the capital cost of so doing, and one has another think.

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Government publications including the White Paper, Rural England, have been helpful and full of sensible thoughts but have lacked a specific thrust towards setting out the logical effects of withdrawal of direct farm prices support in its various forms. Recent studies coming from university departments seem unduly preoccupied with abstract concepts relating to social issues in rural areas.

There is admittedly a great deal that cannot be visualised, but some models could be worked up as a framework for looking at the probabilities--not least in assessing just how soft or hard the landings might be for the farming industry as it moves from one era to another.

Those seeking out possibilities for softer landings might look to another report, Preparing Europe's Rural Economy for the 21st Century, by Professor John Marsh, Sub-Committee D's adviser, and the same Professor Tangermann about whom we have already heard. That report was prepared for the Land Use and Food Policy Inter-Group in the European Parliament. Ingeniously, it argues that reform might not necessarily mean eliminating price support completely. It proposes the retention of intervention prices in years when they are below average world market prices. The stocks could be bought in and sold later on the world market without subsidy. Overall, of course, what is regarded as "good" politics will constantly be employed to smooth the harsh edges of the market. When I look at that report and stop and think about what those politics would do, I have the very distinct impression that therein lies "CAP mark 3" without any radicalism at all.

We have had almost a plethora of documents on the current state of play in the farmed countryside and about the CAP, and a whole host of policy aspirations on the part of government. Now we need something more because, as the European Union enlarges itself and we have at least begun to talk seriously of CAP reform, we face a large black hole of ignorance on the likely emerging shapes of our agriculture in this country.

4.14 p.m.

Baroness Wilcox: My Lords, I declare an interest in that I am president of the National Federation of Consumer Groups. I welcome the recommendations in the Select Committee's most excellent report. The evidence that was given to the committee by the Consumers in Europe Group and the National Consumer Council, and the subsequent examination of those witnesses, has borne fine fruit. Perhaps I may highlight four areas of importance to consumers: urgency of reform; the intervention system; reconsideration of the Commission's Option 2; and devolution of decision-making.

The committee recognised the need for reform now and expressed its concern about lack of progress. Its acknowledgement of the importance of the enlargement of the European Union and the future round of WTO talks scheduled for 1999 as pressures for reform is absolutely right.

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Turning to the intervention system, there is no justification for the intervention system to continue as it is at present. I support the committee in agreeing with the Commission that it should explore the possibility of restoring intervention to its real intended role of supporting farmers in a crisis.

The committee urges the Commission to reconsider Option 2 in its strategy paper. That option deserves our fullest support as it shifts from price support to direct payments for specific social, environmental and regional policy objectives. The Commission itself dismisses that more radical reform option because of, in its words, the

    "undefined social and environmental risks that it implies".
Rubbish! A willing heart, wide consultation among consumer groups and good research would lead the Commission inevitably to the view expressed by the committee in paragraph 108:

    "We see no such problems but, rather, substantial opportunities if the policy is implemented in good time and can be made sufficiently responsive to the varied areas in which it will be applied".

I am sure that many Members of your Lordships' House will join me in warmly welcoming the committee's view that there is a strong case for certain policy decisions to be devolved to member states. As is stated in paragraph 114,

    "In a Community which extends across extreme variations of terrain and climate, it is difficult to imagine that detailed environmental measures could be decided upon by, or implemented from, Brussels".

I, with the National Consumer Council, have long argued that,

    "The Council of Ministers should agree to devolve responsibility for policy on direct income support payments to Member States within five years, subject to European Union guidelines to ensure the free movement of goods, fair competition and that there are no conflicts with European Union agricultural policy directives.

    Within the guidelines, Member States would be able to develop schemes designed to meet their own social, regional and environmental policy goals".

On behalf of all consumers in the European Union, and especially poor consumers, the British Government must continue to press the Commission to reconsider Option 2, radical as it is--and rightly so--to shift the burden of support away from the price we pay when we buy food. It is the poorest who spend proportionately most of their income on food. If it is a country's choice to reach some particular environmental objective, we should all contribute through taxation and direct payments that can be seen and evaluated by all.

British consumers have found their voice through the representative groups lobbying on their behalf, supported and encouraged by governments, both Labour and Conservative, over many years. In that, we lead the field. Northern Europe, particularly Holland, Belgium and Sweden, is well represented and those consumers are well briefed on the CAP. Although consumer organisations exist in central and eastern Europe, they were set up quite recently and are still very weak. As we consider enlargement of the Community, it is for us to show the way forward in this reform and gather converts. Already it is obvious to our current partners in the Union that to adapt central and eastern European countries to current levels of CAP support would take

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spending to levels that none of us can possibly afford. Good! But without the Commission's reconsideration of Option 2 the poorest consumers in Europe will continue to pay the price and we--you and I--as consumers here will continue to pay a regressive tax as our partners slowly (and it will be slowly) lumber reluctantly towards reform.

We must press the Commission again to reconsider, to consult widely, not to miss this perfect opportunity to right a great wrong. I agree with the noble Lord, Lord Beaumont, that this report is a great contribution to one of the most important debates of our time. May its wise decisions prevail.

4.20 p.m.

Lord Gallacher: My Lords, the agricultural strategy paper is an important document which has been recognised as such, first of all, in your Lordships' House this afternoon and certainly by all the parties who gave evidence to the Select Committee.

The three options offered in this strategy paper were very significant, certainly Option 2, which has been touched upon, and also, of course, Option 3, which looks as though it is going to be the preferred option. Option 2 was undoubtedly the most radical, but, as has already been said, the memorandum from the French Embassy to the sub-committee suggested that Option 3 was more attainable, especially in the light of CAP interests and Community voting alignments. French influence on the CAP is still significant and, if I may say so to the last speaker, French influence on consumers in the CAP is even more significant. One would wish that all the effort that goes into consumer affairs in this country were replicated in France. Unless it is so replicated, the prospect of change in the attitude of the French Government, quite apart from their farmers, is considerably diminished.

As the report mentions, the volume of undecided matters is quite staggering. The World Trade Organisation is to review the role of agriculture in 1999. In addition we have 10 membership applications from CEEC countries with widely differing agricultural circumstances. The present relative CAP stability justifies an obligation to push on with reform proposals even after the major MacSharry CAP changes in 1992.

Figures from British Cereal Exports about world cereal markets in 1996-97 show a production increase of 8 per cent. to 1,436 million tonnes. On the other hand, consumption is up by 3 per cent. to 1,419 million tonnes. Stocks have risen to 195 million tonnes but are still only equal to 50 days' supply. European Union grain production figures for 1996 are estimated to be as high as 187 million tonnes by comparison with 174.3 million tonnes in 1995, but Spain's estimate in 1996 of 19.7 million tonnes has nearly doubled the 1995 figure of 10.8 million tonnes. (These figures came to me from COCERAL on 26th June this year.)

The 1996 US Farm Bill was signed into law and is to last five years from 4th April, which takes it to the year 2002. It makes major changes in arable and dairy sectors. The National Farmers Union of England and Wales has summarised the likely effects of the US Farm

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Bill in its brochure Farming Economy for July to September 1996. This brochure suggests that the USA is moving from a deficiency payment system to a decoupled payment system. The NFU view is that in the next World Trade Organisation round the USA will seek a much higher level of domestic subsidy cuts than the 20 per cent. agreed in the Uruguay round. This is forecast on the basis that most of its domestic support arrangements are now in what is called the "green box" and are thus immune from cuts. This is especially true of the arable and dairy sectors. The NFU believes the US Farm Bill is a further reason for the European Union to consider more CAP changes before the next WTO round in 1999.

The Select Committee report in a footnote records that the CAP regimes for fruit and vegetables, olive oil and wine were unreformed in 1992. The fruit and vegetables regime has since been the subject of reform proposals which were approved by the Agriculture Council in July of this year after 18 months of negotiation. One can reflect on that by looking at the prospect of what further changes there may be in the CAP.

Minimal changes have been made to Community regimes for sugar and milk where quota systems are firmly entrenched. The milk regime for its part is to be reviewed in 1997. Milk quotas are now a source of market distortion. Several speakers have mentioned that very fact this afternoon. They need major revision en route to gradual elimination. Palliatives such as cross-border quota sales will only prolong the status quo which is unfair to the United Kingdom in particular.

Wine is of major importance both to certain CEEC applicants and European Union states. Some CEEC producers are succeeding in the United Kingdom market on the basis of price plus quality. If the CAP wine regime is not soon reformed, the admission of certain CEEC applicants to the European Union will seriously increase the cost of the wine regime, including its administration.

In the context of CAP reform, the experience of New Zealand is of interest and importance. Despite qualifications that must be made because of structure, size and other factors, the pain of change for New Zealand was partly eased by the quality of its overseas marketing skills. In this area United Kingdom producers could learn from their New Zealand cousins.

The Select Committee report's consideration of the agrimonetary implications of adopting a Euro-currency was considerably helped by papers from Professor Swinbank of Reading University. In particular, the future, if any, of the green rate mechanism allowing adjustments of CAP prices is of vital importance to all member states, whether their present exchange rates are weak or strong.

Ending distortions caused by green rates has long been an objective for the CAP. As such, it has yet to happen. The introduction of the Euro by major countries in the European Union can hardly be of no significance for green rates. While monetary matters may be outwith the scope of Sub-committee D, agrimonetary systems certainly are not. It is therefore essential to get green

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rate systems on the active agenda of items to be settled before any monetary union. Here again the views and influence of France will be important.

A feature of both written and oral evidence on the strategy paper concerned methods of farming. The Select Committee report takes a balanced view of this question while recognising its significance. Moves to relate CAP prices to world prices are of major short and long-term consequence. Such changes will of themselves bring about radical structural alterations in farming sizes and methods. The report deals as realistically as possible with social and environmental aspects of this matter, given that the European Union is only beginning to reflect on alternatives.

If one attempts to cost CAP changes, plus the expense of granting full EU membership to CEEC countries, the total outlay is formidable, whatever basis of estimating one chooses. The Agriculture Council will be hesitant about changes on cost grounds alone. This must not become a reason by itself for delay. The Select Committee report strikes a note of urgency on this question. Although some may feel that this is the wrong approach at this time, the formidable body of evidence engendered by the strategy paper clearly suggests that, while cool, calm deliberation may not unravel every knot, delay in this area could be dangerous in many ways, while 1999 is not a distant prospect given the magnitude of the tasks.

4.30 p.m.

Lord Wade of Chorlton: My Lords, first, I must declare an interest as a director of a farming and land-owning company and of a company involved in the international food trade. It has been a privilege to be a member of Sub-committee D, which dealt with this important issue, and to serve under the chairmanship of my noble friend Lord Middleton, to whom praise has already been given. As one reads all the reports for which he has been responsible one sees that they have a consistent approach which leads to a sensible conclusion. They take us through all the issues of the CAP as it has evolved, the problems created for consumers, as mentioned by my noble friend Lady Wilcox, and the fact that it is insupportable and unacceptable over a long period. I hope that the four reports will be seen in that context and will be noted not only by the British Government, who have taken serious note, but, more importantly, by those who preside in Brussels and who clearly have a different view of the importance of the relative aspects to which my noble friend Lord Middleton has drawn close attention.

I agree with his sentiments on enlargement and what will happen to the CEE countries. Their economies are in a poor state. In my view, they must have the opportunity to improve their economic structures and to grow more in line with the rest of Europe. If not, we shall be creating future problems in respect of which we cannot imagine the outcome. One way of dealing with the matter is to offer them more trading and investment opportunities to improve the quality of their existing exports, in particular in the food sector. The noble Baroness, Lady David, sensibly drew attention to the

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fact that not all their quality products compare with those of the rest of Europe and therefore it is important that they should have an investment opportunity to be able to do so.

Many noble Lords have referred to the fact that we were confronted with two different opinions on the future of the agricultural market and the kind of role which the CAP might play within it. Attention has been drawn to the fact that Americans are taking a different view of the future and the way in which we should respond to it. A couple of weeks ago I was invited to the annual lunch of the Food and Drink Federation at which Admiral Crowe, the United States Ambassador in London, made the main speech. It might be interesting to hear some of the issues that he raised.

Admiral Crowe referred to the fact that America passed a 1996 Federal Agriculture Improvement and Reform Act, described as FAIR. Whether it is depends on where you are coming from, I suppose. The Act heralds a new era of management and production flexibility by enabling US farmers to plant for the market rather than for government programmes. That would be wonderful to see, would it not? That issue is extremely important because the shape and scale of global demand for food and food products is in flux. Populations which rely on staple commodities are multiplying dramatically. The World Bank predicts that by 2030 the world's population will have risen from around 5.7 billion today to 8.5 billion. Looking at the issue another way, estimates suggest that the trade forces unleashed by the Uruguay Round will increase world income by a massive 5.25 trillion dollars in the next decade. That is a mind-boggling figure and, naturally, a large portion of that amount will be spent on food and drink.

With those trends in mind, Washington hopes to increase annual agricultural exports by 7 per cent. to the year 2000. That would yield a 50 billion dollar increase in economic activity, creating an additional 378,000 jobs. That will not come cost free because, as has been pointed out, the American Government will spend a great deal of money to make that happen. However, the point is that they are spending the money to create trade, jobs, business and wealth for America. We are spending a great deal of money in Europe to support agricultural trade which creates little wealth for anyone. Although I have been in the farming industry all my life, and I take the point that we have gathered billions of pounds as a result of quotas, I have always been against quotas, grants and support of any kind. At the end of the day they merely increase the cost of entry but put no more money into the producers' pockets. During the past few years the CAP has spent more than £20 billion a year on the CAP, but the lot of agricultural farmers has risen not one jot.

Where does that lead us and what will happen? I agree with the sentiments of my noble friend Lord Barber, who has a wide knowledge of what the agricultural industry will do. At the end of the day, no more attention will be paid to this report than was paid to the previous excellent reports of my noble friend Lord Middleton. We shall remain dominated by the timeset of the past, which believes that the only way in which

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Europe can develop is by having more controls and regulations rather than seeing the opportunity of the market-place.

The pressures on British agriculture will be brought about by changes in the world markets rather than by quick decisions taken within the European Commission to make things happen rapidly. We shall see steady changes and adjustments as the importance of the global markets impacts on industries and the European economy most of all. It is beyond the limit of the European economy as it stands to continue to create the wealth which will make possible the payments that are now being envisaged. Therefore, the adjustments must be made slowly. I believe that the American example of taking advantage of the global markets, which will undoubtedly increase during the next 20, 30 or 50 years, will be the key factor.

My noble friend Lord Barber referred to the pig industry. We can see the dairy industry moving slowly in the same direction. I am aware of four large Cheshire dairy companies which have decided that now is the time to sell out. They believe that milk and quota prices are probably as good as they will be for some time and now might be the time to turn their assets into cash and to put that into something which has a longer-term view. That will create pressures on the rural economy.

I turn to the final issue to which I wish to refer; the integrated rural economy which is referred to in Mr. Fischler's report. No one knows what it means--it is quite clear that Mr. Fischler has no idea what it means--but it sounds good and it sounds as though something positive might happen. From previous experience of what the Commission means, the danger is that it might mean that we shall be told what to do in every respect. It may turn out to be a regulatory system and that the Commission will say, "We will have a building here and a field there and that kind of a forest there". That would be a disaster, would it not? That would work against the interests of Britain, our industry, agriculture and the nation.

What it might mean, and what I hope it means, is that there will be an understanding of the changes which are to take place in our rural economy and that people will move from what has been the stable wealth creator in rural areas--that is the production of food--to other opportunities and that the market will press for them and demand them. Governments and the Commission must understand that they must provide the opportunities to encourage that change and not resist it. All successful government actions are those which promote natural change and opportunity rather than trying to hold on to something which at the end of the day is unsustainable. The noble Lord, Lord Beaumont, is not in his place but I strongly believe that the only situation which is truly sustainable is economic growth and greater wealth for the people who wish to be employed in all these businesses.

I support the report and I hope that as many people as possible will read it, support it and act upon it.

4.40 p.m.

Lord Brain: My Lords, your Lordships will be

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pleased to know that we have reached the half-way stage in this debate. I am the ninth of 18 speakers. Of course, that means that many of the earlier speakers have said some of the things that I wish to say.

As other members of the committee have done, I wish to thank the noble Lord, Lord Middleton, for the way in which he chaired the committee and for the help that he gave us all in reaching our conclusions. Also, I support his comments about our professional adviser, Professor Marsh, and our Clerk, who did a marvellous job. If your Lordships look at the report, it can be seen that there are 250 pages of evidence, which they have managed to summarise to 20 pages. To an extent, that demonstrates how much the evidence agreed, one person with another. But, nevertheless, that is a great achievement.

In a way, I shall follow the noble Baroness, Lady David, because I too visited Poland. Some of the comments towards the end of my speech will be based on what we saw there. But that visit has also influenced me as regards the reasons for the earlier part of my speech. Again, I return to those words "timing" and "programme". We are in an information technology age and yet there seem to be no points on the critical path at which time decisions must be taken. We have the end of the present CAP policy and the WTO meetings, both of which will take place in 1999. We have also the EMU and green money problem, which comes around, strangely enough, at about the same time. Therefore, there are many reasons why we must start to talk now, or the Commission must start to talk now.

Also, it is not only delaying the planning in the 10 countries which wish to join. Because of the uncertainty, it is delaying the planning of inward investment, perhaps from this country into those countries. In another report we heard how a large food producer found that, because of quotas and such matters, it could not produce any more in this country and had to set up an operation in Ireland, I believe.

The same must apply to people who would like to set up operations in, for example, Poland. I happen to know, because I heard it outside, that the factories of the Polish Sugar Corporation, which have been advised in part by the British Sugar Corporation, are supplying a major food processor which was installed in that country from this country. Therefore, the quality and improvements that we can bring about if we know what the future policies are to be are important.

We have heard the words "compensation", "adjustment", "integrated rural policy", "regional rural policy" and "the environment". Indeed, we use those words in our report. We have said also that there should be use of the social, structural and cohesion funds in the whole planning of the future. But does not that mean that there are other directorates-general which need to be involved? Does that not take time? I note that the report mentions Directorate-General V, IX and XVI. They cover social, environmental and general cultural planning. The CAP reform goes far beyond agriculture: it goes into the whole structure of many of those countries.

The noble Lord, Lord Wade, talked about money. On the radio on Sunday morning I heard that the only way in which a small farm in Wales was able to make a

15 Oct 1996 : Column 1623

profit was from the support systems available. That means that money must go round in circles, and when it does that, every time it touches "go" somebody removes 5 per cent. or more. The bureaucracy involved is enormous.

I turn now to Poland. I shall not go into quite so much detail as did the noble Baroness, Lady David, about the meetings that we had. My feeling was that in general those on the governmental side and the parliamentary side were very positive and very interested and we had an extremely open discussion.

However, I wish to talk about the infrastructure in Poland. We visited a fairly modern dairy which was certainly upgrading itself by using computerised control systems to ensure the quality of its product. But one must realise that that dairy was supplied by 8,000--I repeat 8,000--producers, some of whom were supplying only five or 10 gallons--in other words, 25 to 50 litres--a day. Your Lordships can imagine the infrastructural problems of getting that there. More than 500 people were employed to collect the milk. That is a great deal of rural employment. As the noble Lord, Lord Barber, said, if you start to make those changes and, as the noble Lord, Lord Wade, said, if you reduce the number of dairies, you will reduce rural employment in Poland.

But also one of the problems about the lack of planning--and this is where I return to the financial problems--is that there is no market in land in Poland. People just go on farming because there is no money. Nobody has any confidence in what future prices will be in Poland. The Government seemed interested in the idea of an agricultural bond. The average age of farmers in Poland is about 60. The bond would enable older people to leave farming, or perhaps to lease or share farms. But at the moment they struggle on.

We visited one small farm which milked 25 cows, with a total herd of about 60. If that farmer wanted to expand, the nearest land consisted of two or three small plots which were 10 kilometres away. Your Lordships can imagine the problems of trying to farm such an area. The farmer was keen to expand. He had support from the dairy to install a modern milking system, a chilled system, in order to provide milk of the necessary quality. He was efficient, keen and young.

The other place that we visited in Poland was a fruit processing plant which processed fruit and vegetables and which made fruit juices and so on. Before we visited the factory we were taken out to see one of the suppliers. He was not a major supplier, but because he was an entrepreneur and had been efficient he was busily building a cold storage unit so that he could keep his apples in optimum condition and receive a higher price for them by selling them to the apple juice processor in February and March instead of having to sell them all by December. That is the entrepreneurial side of Poland.

They need to know which way they are going; whether they will have milk or sugar quotas and so on. I welcome this report.

4.48 p.m.

Lord Mottistone: My Lords, I welcome this excellent report and thank my noble friend Lord Middleton and the

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members of his sub-committee for it. Several years ago, I had the privilege of sitting on that sub-committee for several years and not a lot has changed.

In speaking in the debate, I must declare an interest in the Biscuit, Cake, Chocolate and Confectionery Alliance for which I act as a parliamentary adviser. As well as being advised by that alliance, I also received advice from the Food and Drink Federation. I am delighted to see that the more important views of both those trade associations have been included in the relevant recommendations in the report.

The particular recommendations which I invite your Lordships strongly to support--and indeed, nearly every noble Lord who has spoken has done so--are those which press the European Union and the Commission to reform the CAP and to do so now and not later; and in particular to drop support prices and supply management mechanisms as recommended in paragraphs 128 and 129.

As other noble Lords have said, as time goes on, the need for these changes becomes ever more pressing for all members of the European Union. But, as I indicated earlier, I remember Sub-Committee D making very similar recommendations about 15 years ago to the European Community. Ever since, there have been similar recommendations and reports, several of which, happily, have been produced under the chairmanship of my noble friend Lord Middleton who has been remarkably consistent not only in his own approach to the problem, but also in following those that went before.

It seems to me that the problem is the grip that the French have on the Commission in general and DGVI in particular, as epitomised in the concluding sentences of paragraph 27 of the report. I think that it is almost cheeky of the French Embassy to make that contribution. That point was well made by the noble Lord, Lord Barber of Tewkesbury. However, I would quarrel with him on one point. The noble Lord gave the impression that it was all new information that he was kindly giving us, but we had actually realised it--in my case for at least 20 years, and I suspect that many of my noble colleagues had known about it for much longer. Apart from that, I agree with everything that the noble Lord said.

It seems to me that the basis for it, if I may touch on that, comes from Napoleon or indeed Colbert. If you read a bit of history, you will see how they recommended this kind of approach in the 17th and 18th centuries. The French do not seem to have realised that Napoleon lost the battle of Waterloo. When he said that the British--although I believe that he probably referred to the English, as I am sure the Scots would understand because Napoleon was so ignorant--were a nation of shopkeepers he thought that he was insulting us. But, in fact, he was giving us all the praise in the world. If only the French could become a nation of shopkeepers, we would be a lot better off in Europe and, indeed, in the world as a whole.

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Artificial prices to protect farmers instead of decoupled payments have the effect of interfering with trade in all types of agricultural products, processed foods as well as primary products. Indeed, my noble friend Lord Wade put that a great deal better than I can. Since the CAP was imposed on the Community, mainly by the French for the reasons that I have given, as part of the Treaty of Rome--and it is nothing new--the world has moved on. That is what these people must understand. In particular, with all sorts of particular misgivings by nearly every individual nation, including the United States of America, the world as a whole has come to see that the freest possible trade is to the benefit of everyone. Some of the remarks that my noble friend Lord Wade quoted from the American ambassador made that so very clear.

Broadly speaking, each stage of world trade agreement is more free than its predecessor. The WTO, for example, is freer than the GATT. Cannot the French and their lackeys in DGVI see that major changes to the CAP are necessary soon--and I emphasise the word "soon"--to meet the internationally agreed WTO, as well as to help the agreed expansion of the European Union? I am delighted to see that our own National Farmers Union goes along with that need; indeed, I believe that practically everyone else here also does so.

But we can only ask the French and the Commission to admit that a CAP based on managed prices is fatally flawed and detrimental to free trade if we are prepared to accept freer trade ourselves. An example of where the report does not include and perhaps--I hope not--does not support the views of the Biscuit, Cake, Chocolate and Confectionary Alliance and those of the Food and Drink Federation is in not protesting at the maintenance of a highly artificial minimum import price system for soft fruit which is an important Polish product. The artificial price system concerned is maintained because of United Kingdom Government insistence. Perhaps when he comes to wind up, my noble friend Lord Lucas might give encouraging support to the thought that the UK Government are about to change their policy in that respect. Then we will be able to say whatever we need to say to these rather anciently-informed countries across the sea. That point is referred to by a Food and Drink Federation representative in column 287 of the oral evidence on page 113 of that section of the report.

Of course, the growers of our own food must be given sufficient financial help where this is necessary. Paragraphs 128 to 135 of this report spell out sensible action to achieve this very clearly. It must be remembered, however, for the good of us all in the Community, that value added processed foods traded overseas with minimum or preferably no restriction, bring in much more financial benefit to the European Union than trade in primary agricultural products. Therefore, the Commission needs to listen more to what DGIII says in that respect than to DGVI. We need the European Commission to have the slogan: free trade for all.

4.57 p.m.

The Duke of Somerset: My Lords, as an outgoing member of Sub-Committee D, perhaps I may join others

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in welcoming this particular and important report. Perhaps I may also congratulate and thank our chairman, the noble Lord, Lord Middleton, for his resourceful competence in chairing the committee and echo the remarks so well put by the noble Lord, Lord Reay, on that score. Although the subject of the report was visited by the committee only two years ago, this new report is still very important for a number of reasons. Not least among these is the emphasis provided by the similar, but stronger, message that this second report delivers.

Like other noble Lords who have spoken this afternoon, I believe that the committee felt strongly that the impact of its report was not as resounding as it would have wished. I am told that these reports are well regarded both in the industry and in the EU Commission, yet the exposure that they achieve in the media in this country is disappointingly limited. Perhaps this second attempt, which is logical in its conclusions and attainable in practice, will focus the minds of the Commission more accurately. For, like it or not, it is they, together with the Council of Ministers, who now decide the path of British agriculture and the health of the environment in this country.

We have surrendered most of our sovereignty to Brussels, so, barring an upset by Sir James Goldsmith, we are reduced to arguing our position as a small cog in the European Union. Unfortunately, even in this process, whatever the merits of our case, other considerations will override. So it matters not that it is crazy to pay producers to dump perfectly good fruit and vegetables, or to store indefinitely perfectly good meat products in intervention, or for us to import French milk when we have a perfectly good capacity of our own, for it is in reality the artificial politics of the trade-off between Ministers carrying the electoral baggage of 15 nations that triumph.

While this report is much more temperate in language than my efforts, it emphasises the need to reform the CAP. The question, of course, is whether this need will be acted upon in time; that is, before the US Farm Bill encourages what is estimated to be a 30 per cent. expansion in production by the end of this century and the corresponding reduction in world prices that will inevitably result. The report makes it quite clear that the enlargement of the European Union to the east is only one of a number of factors that are driving this need for change. The future round of the World Trade Organisation talks, the agricultural budget and the future shifts in world market demand are the other main factors. However, enlargement per se is a crunch subject for the European Union, and particularly as regards its agriculture. The noble Lord, Lord Middleton, quoted Sir John Birch, our former ambassador in Budapest. The noble Lord mentioned the ambassador's sensible words with which he greeted us when we visited that country. Those words are just as true now as they were two years ago.

As we see the former Soviet Union collapsing and we watch the determined fanatics of Islam spreading their wings closer to the border, and sometimes within NATO, it would be disastrous to permit the CEE countries to think that life would be better outside NATO and outside the European Union. It is ironic that

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they strive to join this club, to share in the social and economic benefits and the perceived stability and democracy, while many inside endeavour to push back the tentacles of federalism and the EMU. Perhaps by the year 2000 some of those countries will enter a shell from which some of the former inmates have fled, or perhaps they will enter an entity that has seen sense and has seen that some of its policies are unworkable and its intrusions unwanted and that its unelected dictatorial attitude has been rejected.

It is said that 60 per cent. of German people do not want a European currency which involves the loss of the Deutschmark. One can probably point to a similar figure in other member countries, including our own. The EMU is vitally linked to the CAP and its future. This link is called the agrimonetary system, whereby a "green rate" system of conversion is used for support payments. If, despite the wishes of the populace, a form of EMU is imposed on some countries, it is likely that some members will stay outside. How then will a single market be sustained? It would be most difficult if the current price support system was still in place. This subject is only touched on in this particular report, but is glaringly omitted in the strategy paper that we are discussing. Perhaps there is a parallel here between the CEE countries striving to hit the moving target of the CAP by the year 2000, and the British Government trying to hit an electorate without telling it what their monetary policy might be by then.

If the European Union really wants to welcome the CEE countries into the fold, it must make greater efforts to encourage fairer trade. It is still too obvious to most observers that the balance is tilted far too far in favour of established member country organisations. To pay lip service to an ideal and then deliberately to block any implications of that decision should be derided. The report instances where this has happened and makes appropriate recommendations. However, the attitude of the Council is demonstrated by the reduction in the tariff quotas which govern imports of agricultural produce from CEE countries. A proposed 10 per cent. increase was watered down to 5 per cent. for five years. Licences issued for these quotas are again biased to their benefit. The redoubtable Professor Tangermann, whose views on much of this subject seem so sensible--and of whom we have heard a little already--proposes auctioning them, with the funds so raised used to finance aid and development programmes within the CEE countries. The report favours that course of action. It would seem a sensible move.

The report devotes much space to the problem of the mechanism of reform. Either this can come first or last in Community thinking. If it comes first, with a workable plan it will be much easier to convince other members of the need for reform. If the decision to reform is made first, the mechanism could become a source of endless discord. Our report lays out a clear path, and this is one the Government should advocate. The Government appear to support the proposals, including still seeing a role for the concept of cross compliance on existing payments. The report describes that concept as unhelpful. I was pleased to note that the

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CLA also rejects cross compliance. That excellent organisation makes an important caveat where it warns of the dangers of the bond system. That bond would be allocated to the producer, who is so often a tenant in the United Kingdom. I declare my interest as an owner of let land. I would be alarmed at the prospect of value being syphoned away from one party to another. If that led to marginal land becoming less viable, the landowner would no longer have the resources to look after and care for that land. That could only be detrimental to the rural economy.

I wish briefly to support fully the notion of the integrated rural policy. I hope that the interpretation of that policy of the noble Lord, Lord Wade, will be implemented. I support the notion of fully decoupled, time limited aids working alongside separate policies with environmental and social objectives. The policy should be separate from the CAP. I return to where I started. It seems imperative that having debated this important topic in this House every effort is made by the Government to push the message home to both the Commission and the Council of Ministers. It must be got right this time because the 1992 reforms impacted only slightly on production levels. Any improvement has come from depletion of stocks through short-term world market changes. The CAP is still vulnerable.

5.8 p.m.

Lord Stanley of Alderley: My Lords, I declare an interest as a practising farmer for over 40 years. Perhaps more importantly, as an ex-member of Sub-Committee D, I may be allowed to say that I found this report arguably the most interesting that the committee has ever produced. As I believe my noble friend Lord Mottistone said, that means almost certainly that the EU will take no notice of it. My noble friend Lord Middleton may accuse me of being too cynical. I hope that is the case.

Certainly this report has made me realise that we have two choices. We can either continue with the present policy of fortress Europe protecting the agricultural industry and taking little account of what is happening outside the existing EU, or we can strive to make our industry economically sound and aim to be competitive in world markets. In response to the comments of my noble friend Lord Wade I say, "horror of horrors". If we follow his suggestions, I shall have to produce for the market rather than for the subsidy, and that would be a serious blow for me. However, to be serious, I cannot envisage that we can attempt to resolve any of our problems, in particular the accession of the CEE countries, until a firm decision is taken to follow the latter choice; that is, a competitive agriculture. In paragraph 87 the report states firmly that at the heart of any future CAP should be policies which ensure that producers are able to compete at world market prices. That is further elaborated upon and endorsed in paragraphs 100 to 102, 114 and 116.

With the possible exception of the noble Lord, Lord Beaumont, I think that all your Lordships would agree with such an obvious objective: that we should not continue to seek to be fortress Europe. But the snag is that the present system encourages exactly the opposite

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approach with valuable quotas, headage payments and set-aside payments which perpetuate the status quo and inefficiency that hinders the young progressive farmer. Being old and worn out, the present system suits me well. Indeed it suits most existing farmers well, but such a system must end in chaos as anyone will know who has taken note of what is happening in the Pacific Rim where its philosophy is totally and aggressively outward looking. That will make quite sure that unless Europe takes a similar outward-looking view she will end up an even poorer and deprived continent than she seems determined at present to be. Unless we, too, adopt such a policy, how can the CAP accommodate the inevitable future increase of cheap food from the CEE countries? Following the noble Duke's line, are we to have two tier subsidies? The thought appals me.

Of course because the present system is comfortable for existing farmers--and, as the noble Baroness, Lady David, implied that includes me--it will be politically very difficult to move to an outward looking and competitive agriculture. The noble Lord, Lord Barber, referred eloquently to that point in his speech. Inefficient farmers will go to the wall, which could or might cause social problems in the village. The United Kingdom has seen that happen to a much greater extent than those across the Channel. However, like my noble friends Lord Middleton and Lady Wilcox, and the noble Lord, Lord Brain, I am convinced that the problem must be faced now rather than later. Nettles not grasped this year always become much more difficult the next year. Alternatively, for the benefit of the noble Lord, Lord Beaumont, perhaps I should say that thistles not sprayed this year become worse next year.

I believe, however, that there are many ways to alleviate the problem. The first and most important is to state that an internationally competitive policy is the long-term objective in which there will be no place for supply controls such as quotas. A time schedule should be produced to avoid farmers getting into impossible financial difficulties in buying, selling and owning quotas. We can see that happening every day--and I own quite a bit, thank goodness.

Finally, as every developed country supports its agriculture in one way or another, it will be necessary to do so in the United Kingdom. I entirely agree that there is absolutely no place whatever for cross-compliance; and I once again ask the Government, as have so many noble Lords already, and the Commission to look at Professor Tangermann's bond scheme. I am sure that it could be made to work. I fully understand that there are some problems, as the noble Duke said.

I thank my noble friend Lord Middleton, Sub-Committee D, and its specialist adviser for producing such an excellent and thought-provoking report. It should be compulsory reading for every farmer.

5.14 p.m.

The Earl of Clanwilliam: My Lords, I, too, thank the noble Lord, Lord Middleton, and his committee for this excellent report and join with my noble friend Lord

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Barber of Tewkesbury and the noble Duke in the call for wider publication of these reports. The report is in the best tradition of reports of Select Committees of this House but they do not gain sufficient advertisement. Recently the sub-committee on fisheries issued its report and I had to make considerable efforts to ensure that copies were distributed to heads of other European member states. I hope that the efforts which my noble friend Lord Barber stated that he has put in train will have more effect than mine have had.

Deep structural reform of the CAP is required. Speed is essential if anything is to be done. World prices at present provide a propitious moment when there might be some movement. Nevertheless, I believe that the opposition of the French and the Germans, with their provincial farmers, is a problem which will be overcome only with great difficulty.

The reform is recognised as a unique opportunity to bring together agricultural and environmental interests. As may be expected, I make no apology for bringing to your Lordships' attention the cause of organic farming, which delivers environmental standards of the highest order and sustainable farming policy which does not depend on the agrichemical industry and promotes biological diversity in a way that no other system can offer. It also produces a standard of nutritious food which makes a mockery of the fast food and supermarket cheap food outlets that have overtaken our society today. Indeed, I am confident in saying that. I believe noble Lords will agree that there is a growing understanding in the country of the importance of diet and its effect especially on the young and the youth of our country. Recently a young woman stated on television that she had not heard the word "diet" until she was 30. That could only happen to a generation subsequent to the 1960s which has known only cheaper and faster food.

In addition to its contribution to society, extensive farming requires additional labour and a well-trained team of farm workers. By the same token, it takes the farm worker out of his satellite-controlled cab and restores the community spirit and the village farming environment. Above all, it promotes biological diversity in a way that no other system can.

As I have said in previous debates, there is no suggestion of wholesale transfer to organic farming, which would in any event be totally impractical, but we should target an increase from the present 0.3 per cent. of UK arable acreage through to a magnificent trebling to 1 per cent. That is the ambition of MAFF. I am very glad to have the opportunity to congratulate my noble friend on the Front Bench on the document that she has produced entitled MAFF-Sponsored Research into Organic Agriculture. It indicates that organic farming is a self-sustaining system and can be profitable. It remains only to persuade the Treasury to increase the assistance to those who wish to convert with decoupled and time-limited aid.

Paragraph 112 of the conclusions to the report states:

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    "The policy is sufficiently flexible to accommodate a spectrum of farming ambitions. The farmer who wishes to farm extensively and use organic methods would have the opportunity to benefit from relevant environmental incentives which may add to income in ways which make his business viable".
I am glad to welcome the report particularly on that basis and I hope that it will go a long way towards persuading DGIII to pay some attention to DGVI.

5.20 p.m.

Lord Pearson of Rannoch: My Lords, I intervene briefly before the Front Bench speakers during this important debate. I do so to put one very simple question to my noble friend the Minister. Your Lordships have agreed that the CAP is in need of urgent and radical reform. Most of your Lordships seem to see such reform as necessary in order to permit the enlargement of the Community, although many of us believe that reform is essential, whether enlargement takes place or not, simply because the CAP has become such an environmental and economic disaster in itself.

But a number of your Lordships have mentioned the opposition to reform which exists among other Community nations. My noble friend Lord Middleton, in his excellent introductory speech, said that most member states would need persuading of the need for reform. The noble Lord, Lord Barber of Tewkesbury, emphasised this problem, as did my noble friend Lord Reay.

So I ask my noble friend the Minister whether the Government have given much thought as to just how difficult it is likely to be to persuade the Council of Ministers to agree to any worthwhile change at all. I suggest this because of the way in which the qualified majority voting system works under the Treaty of Rome. I would remind your Lordships that there are 87 such votes among the 15 member nations; 62 are required to carry a motion and 26 to block one. The UK has only 10 votes and, as your Lordships will be aware, we are often alone in our views. I do not know how lonely we are in our wish radically to reform the CAP, but the balance of national interest does not look encouraging. I say this because I understand--and I am open to correction from my noble friend on the Front Bench on the precise picture--that the principal paymasters of the CAP are Germany, Denmark and ourselves. We have only 24 votes between us.

However, I understand that the recipient countries of the CAP's largesse have some 54 votes between them. Even assuming that Germany and Denmark were to vote with us--my noble friend Lord Reay cast doubt upon the Germans' enthusiasm even for starting to discuss reform--we would be powerless to effect change because 54 votes are likely to be ranged against it. I repeat that 62 votes would be needed to effect reform. So even if these national voting figures and allegiances turn out to be somewhat pessimistic, I trust that my noble friend the Minister will accept that agreement about reform may well prove impossible to reach.

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If my noble friend does not agree with this analysis--which would, of course, be very good news--can he tell us how the Government see the qualified majority votes being cast for and against adequate reform of this pernicious policy?

It seems to me that, as with the many other problems created by our membership of the European Communities, once again it is the Treaty of Rome itself which lies at the root of the problems we have been discussing. But this is not the time to pursue that deeper problem. I merely await my noble friend's reply.

5.23 p.m.

Lord Mackie of Benshie: My Lords, I did not quite follow all that the noble Lord, Lord Pearson, meant in his short question, but I gather that he is against the CAP and Europe in general. We all recognise that there are problems. However, the report is, as usual with anything chaired by the noble Lord, Lord Middleton, excellent to the point that it follows the logic of previous reports. That is not always the case. I join in the congratulations to him on his period as chairman and trust that he will stay on the committee and keep a steely eye on the next chairman, to keep him on the right lines.

We must look at the report, but to see the effect of all the global tendencies on our agriculture at present we must also look at agriculture in the past in this country. We had the golden age of the industrial revolution where land was taken up, systems were improved and the wealth of the farming population increased. The population increased and there was a spell of prosperity. Because of the industrial revolution there was an agricultural revolution which, until 1870 or 1880, was a system of consistent progress. Then the prairies were mined and the horrible Vanderbilts constructed railways to take the grain out of the prairies, bringing it over here. Then we entered a period which, apart from wars, set the countryside and farming back enormously.

The great enthusiasts for the world market might reflect on the misery and poverty of the pampas in Argentina, the plains of the States and Canada and agricultural areas in this country, right up to the last war. The great open market did not seem to bring many blessings to the agricultural populations of the world. We should reflect on that when we look at the great explosion of world trade that is to come.

One can easily see what has happened in Eastern Europe because of our lack of thought, or the lack of preparation in those countries for any transfer to a free market system or democracy. One of the worst situations exists in the Ukraine. I am on the Council of Europe and we listened to a speech from the Ukrainian member detailing the real situation of unemployment in the Ukraine. He reckoned--and he produced figures to prove it--that 40 per cent. of the population were living in poverty and destitution. Some idiots suggested, as we did--and it is still suggested in Russia--that in 500 days Russia could be transformed into an open market economy. That is just not true; it is madness. It will take at least 50 years for Russia to reach that stage. One only has to visit the Eastern European countries, particularly

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Russia, to see that all enterprise has been killed. Most of the people have been so accustomed to direction that they do not understand what to do in a free market situation. Because we thought it could be done quickly, we have turned many such people against us and against democracy. They long for a socialist autocracy in which at least they were fed and looked after. We should not look for tremendous results from a great explosion of production in the world unless we can do something for the people who will be displaced from their jobs.

The near east countries like Poland and Hungary, which I know quite well, will progress quite rapidly. They could probably cope easily with the agricultural countries of the European Union by the year 2000 because they start with a low base. I have a couple of friends who farm in Poland. They are getting on quite well, working hard and trying to overcome the problem of a non-existent system. They cannot obtain fertiliser unless they get a lorry and go to Germany themselves to find it. But they pay good wages for their country, just over £50 a week. If we relate that to the price of a tonne of barley--in their case about £95--then they are in a favourable position to compete with wages in this country. Here, the wage for a week is more than two tonnes of barley. They are progressing, and will progress, because there is a residue of enterprise left. They have not been ground down for so long as the Russians have. They will progress quite rapidly. At a guess, they will produce what they were producing (with too many men, and expensively in the Communist period) in less than three years' time. I do not believe that the very high prices are as assured as we seem to think. Certainly world reserves of grain will rise by some 20 million tonnes, a figure I have seen this year. It is not a great deal in terms of what they have been, but there is tremendous potential in Eastern Europe and probably in the United States for an increase in grain production which may well see the present opportunity disappear. So we have to watch that. I understand that in America the Federal Agricultural Improvement and Reform Act (FAIR) will produce some 5 billion dollars a year in straight subsidy to the farmers based on past performance. That will be guaranteed on a slightly declining scale for seven years. What will happen after that is not stated. Support for the dairy industry is to be phased out, slowly, in about three years. Therefore, the present high prices may not last.

In the present situation a great deal of the nonsense of the CAP could be stopped. I could not agree more with those who point at quotas. It is absolute madness that in some cases a quota is worth more than the farm to which it applies. It is absolute madness that we still have the supports for olive oil on which I reported long, long ago when I was chairman. I understand that the situation is still the same. Nothing at all has been done about it. Again, the report refers to fruit. The situation is ridiculous. People pour fruit into the intervention system and there is straight-up corruption, proven by visits. Any sort of fruit will be passed. Farmers do not try to market the fruit or improve it. They produce for intervention alone. The Commission is not tackling these problems. It is tackling wine, and the wine

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industry itself is doing something about it. But the problems are not being tackled very fast. I agree with the committee that it should move a little faster.

On the other hand, one has to appreciate the situation in France, parts of Germany, Austria and other places, where people are desperately worried about the effect on the rural population of entering a fully competitive world system. They will take a great deal of persuading. The noble Lord, Lord Pearson, referring to the number of votes, may be quite right; it may be difficult to persuade people. I believe that facts will persuade them, but it will take time. The report will do a great deal of good in that it will lead people to think about these matters. It will be studied in the Commission and that will be extremely helpful.

I do not believe that we can altogether abandon decent protection for primary producers. Whether they mine tin or produce rubber, tea, wheat, pigs or poultry, primary producers receive a raw deal from the market. The great market is not very good for them. Some system needs to be devised to provide an element of protection. The trouble with the CAP is that the market was not followed; countries tried to go against the market. A system of protection has to recognise and alleviate market factors. The way in which we have done it is to go wholly against the market and try to force an issue. That is why we are landed with the ridiculous system that we have at present.

The Council of Europe has recognised the unease among the various governments of Europe in relation to the situation in the countryside. It is a situation that has always been there. Young people in farming need a job to go to. Jobs in the city are declining. If they are unemployed they get into trouble and the result is crime. They need somewhere to go. Without doubt, jobs in farming will become fewer.

The great cry is that a rural charter be produced and put to governments for their consideration. The essence of the rural charter is simply that you treat the countryside as a whole: you do not let agriculture decline. You do not let the fabric decline without putting something in its place. The Highlands and Islands Development Board has been doing that in this country, and it has been done in other ways. The approach needs to be developed as a definite policy. Of course, it has to be "decoupled"--that is the modern word. But it is an important approach. I believe that is what is meant by "rural integration", the phrase so despised by the noble Lord, Lord Wade.

There needs to be time. I do not believe that the CAP can be reformed in three years. I entirely agree with the report: it will take a little time. This is a good report. It deserves to be studied in Brussels and elsewhere.

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5.37 p.m.

Lord Carter: My Lords, like other noble Lords I congratulate and thank the noble Lord, Lord Middleton, and his Committee on producing an authoritative, objective report with excellent analysis on this very complicated subject.

The first and most obvious point to make is that the 10 CEE countries each have their own problems. As the report says, it is a great mistake to treat them as an Eastern bloc. I had the good fortune to visit, albeit briefly, seven of the 10 countries referred to in the report. On each occasion I made it my business to meet farmers, officials and politicians. I was struck by the similarity of many of their problems as they each emerged from the command economy. I was equally struck by the great differences in their agriculture potential, social structure and rural economy. I also noted a very important point which was perhaps not picked up by the committee; namely, the extreme unreliability of many of the statistics quoted from the CEE countries for production and yields. Perhaps I may illustrate that with one brief anecdote.

On a cattle breeding farm in one eastern European country, we were entertained first in the boardroom with the usual hospitality and were told that the yield of the cows on that breeding station was 7,000 litres. I thought that figure was pretty good. When we went outside and looked at the cattle I should have been surprised if they were giving 700 litres. I have never seen cattle in such poor condition. When I managed to extract myself from the hosts and speak to the consultant from Brussels who was with us, I asked what on earth was going on. He said that 7,000 litres was the figure that they used to have to report to the central planners. It is the figure that they are still reporting because their jobs depend on it. That was only a year or two ago.

The committee recognised the wide range in the figures quoted for the possible cost of accession. We know that the figures which are quoted depend entirely on truly heroic assumptions which are made as the basis of the highly sophisticated calculations that follow. That point was well made in the excellent written evidence of Professor Allan Buckwell of Wye College, who said (page 185):

    "I draw attention to these aspects of the document, not because I have any reason to suspect systematic bias in the projections, but merely to underscore the highly speculative nature of the analysis conducted which tries to peer 15 years into the future for 25 countries and a dozen commodities".
With regard to the cost of accession, we should not forget that the agricultural budget in the CAP is allowed to grow under budgetary guidelines by 0.74 per cent. of GDP each year. It would be interesting to know whether the Ministry has made any calculations of what that might be around the year 2000 and how much of that allowable increase in the EC budget for agriculture would be available to accommodate the cost of accession.

The other great imponderable is a situation mentioned by a number of noble Lords; namely, the world supply and demand for food over the next decade. Some argue that increased demand from a rising world population and increasing prosperity of certain of the major

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players--for example, China and the countries of the Pacific Rim--will automatically call forth increased supply. That argument is based largely on past experience. Others argue that physical problems of water supply and other agronomic restrictions will inhibit the capacity of world agriculture to meet the increased demand.

Clearly, the accession scenario will be very different, depending on which school of thought proves to be correct. Certainly it would be a rather brave policy-maker who based policy on a purely mechanistic view of food supply and demand. I feel that some degree of caution should be built in. But as all speakers in the debate agreed, the European Commission can hardly be accused of bravery in the way in which it has approached the problem of accession. I think that the committee is excessively polite when it points out (paragraph 77) that:

    "We recognise that making rapid progress within the institutions of the Community is difficult".
If it is difficult now with 15 members, what on earth will it be like in a Union of 25 members?

One central problem is touched on by the report but for understandable reasons is not fully grasped. How is all the talk of transition, adjustment, variable speed entry and the rest to be reconciled with the concept of the single market?

The different experience of the UK and Ireland after entry in 1973 is instructive. Your Lordships will remember that the UK had a seven-year transitional period after entry; but Ireland went straight to full CAP prices. The UK had a chance and the time to adjust. Ireland had a sudden almost uncontrollable burst of agricultural prosperity which was followed by a savage adjustment. It was classic boom and bust. In the UK and Ireland that all took place in the absence of a single market in agricultural products.

In the light of that, I find it hard to grasp the concept stated in paragraph 78 that:

    "it is possible to envisage joint accession with full integration in individual policy areas being taken on a step by step basis or that accession on an individual basis might only take place once full integration in all sectors is guaranteed".
How can that be? Suppose that the Polish cereal regime is ready for full integration but the Hungarian cereal regime is not. What happens if cereals are to be traded in Europe through a single market? That applies to every commodity in every CEE country. I can offer no solution. But it seems to me that a country by country and product by product analysis has to be concluded in much greater depth than has so far been attempted if we are even to approach a solution.

I was interested to see that the Tangermann bond is once again tempting your Lordships' committee. It is beginning to resemble Banquo's ghost in our various discussions on agricultural policy. I am not sure if a ghost can be described as intellectually seductive but politically impossible, but I fear that that may be the judgment eventually applied to this particular policy nostrum.

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Let me repeat a point that I have made before. The UK should be particularly cautious before advocating the bond approach too enthusiastically. The first version of the bond produced by Professor Tangermann was intended to be explicitly "degressive"; in other words, larger farms, however defined, got less than smaller farms. It was modulation in another guise. That concept could easily be reintroduced and a moment's thought would show that it would not be to the advantage of the UK because of our superior farm structure.

Another central point concerns the structure of farming in the CEECs. My brief visits to seven of the 10 countries convinced me that the biggest obstacle to improving their agricultural productivity has been their self-induced obsession with land reform. One effect of the previous regime was to concentrate farmland occupation in very substantial blocks. Those could have been broken down into smaller but still efficient units of agricultural production while paying the original owners, who could be traced, a rent for their small part of the land. I hope that your Lordships will note the irony of a member of the Labour Party advocating a landlord and tenant system. Perhaps it is yet another aspect of New Labour.

The point was put extremely well in a recent article on Romanian agriculture which quoted the Romanian president:

    "In place of the old state cooperatives, the government has passed a law to redistribute the land and return it to the original owners. More than 80% of the arable land is now farmed by private producers. But this transition has created some new problems".
It was pointed out by President Iliescu:

    "For nine million hectares of land, we now have 6 million owners. It is very difficult to develop a modern, organised agricultural system with such small farms".
The article continues:

    "The government is at present thought to be considering encouraging the creation of larger, private farms in order to achieve more efficient economies of scale ... Mr. Tabara [the Agriculture Minister] blames the difficulties of breaking down the former state farms into such small units for the slide of agricultural production the country endured in 1991 and 1992".

The committee's report mentions directing aid towards restructuring and there are two points that occur to me. It would be ironic to say the least if substantial resources had to be invested--they would be resources from the taxpayers in the 15 original member states--in putting back together viable units from farms which had been deliberately broken up in the first reaction to the old regime.

Secondly, the report touches on fraud in paragraph 115. Aid for restructuring would have to be very closely controlled indeed if it were not to be dissipated through fraud and misdirection.

Perhaps I may pick up a few points from the debate. The noble Lord, Lord Middleton, pointed out--as does the report--that the target is accession by the year 2000. That seems to be a very ambitious objective which I should have thought very unlikely to be achieved, particularly if European monetary union is to begin in 1999, because of the complications of the overlap.

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The noble Lord, Lord Reay, quoted the suggestion by Professor Tangermann of the intervention safety net, which would be based on 75 per cent. of the moving average of world prices over five years. It is an ingenious idea but I emphasise that the definition of "world prices" will be absolutely crucial in such a calculation. As we all know, they can be defined in many different ways.

An important point made by the noble Lord, Lord Barber of Tewkesbury, and other speakers, was the degree of hostility to CAP reform in certain powerful member states. We are aware of that. But if we couple that with the fact that 80 per cent. of the work of MAFF is concerned with matters European and all of that is subject to qualified majority voting, it means that CAP reform is likely to be a long, slow task and a policy as splendidly isolated as radicalism is not likely to be very productive.

There were many points made which I should have liked to cover, if time allowed. One is the whole question of import licences and quotas, which I know from my own experience is a sore point with all the CEECs I visited. Another is the whole question of integrated rural policy which the Commission appears to view as a kind of bucolic back to basics. Reference was made to the tremendous environmental and pollution problems in many of the CEECs and the woeful state of almost all of the food processing industries. Mention was made too of the problems in the monetary union--or not as the case may be. Professor Swinbank's written evidence is a tour de force but the reality is succinctly put by Professor Tangermann on page 149 when he says,

    "I find it amazing that we are entering into probably the largest experiment in history in monetary and exchange rate policy without even knowing what institutional arrangements will be in existence to deal with it".
After spending almost all of my professional life having to deal with the lunacies of the CAP, I am surprised that the professor is surprised.

Time does not allow for further analysis of the excellent report. The noble Lord, Lord Middleton, and his colleagues are to be congratulated on what I am sure will come to be regarded as a seminal analysis of this important subject. Their description of the CAP for the 21st century in paragraph 122 is an excellent summation of what we should all like to see. We must hope that the report and the discussions that it will engender help to bring that about.

5.52 p.m.

Lord Lucas: My Lords, my noble friend Lord Middleton and his colleagues on Sub-Committee D are to be warmly congratulated on the breadth and depth of the report. It is a great tribute to my noble friend's time as chairman that he should be leaving on this high note, and the quality of the report has been well reflected in the quality of our debate today.

We have heard many excellent speeches, but I was particularly struck by the speech of my noble friend Lord Reay. It was lucid, to the point and eminently "listenable to". I hope that we shall hear him on these

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subjects again. I am sure that in the course of what I hope will be a relatively short reply I shall miss many points made by noble Lords. I shall read Hansard and reply in writing to any points that I omit.

The principal problem that we experienced in replying to the report was finding sufficient variants on the word "agree". To our mind the case for reform is unanswerable. The present CAP creates major distortions in the EU economy; it holds back European agriculture by making it more difficult for industry to compete in world markets, as my noble friend Lord Wade of Chorlton said; and, as my noble friend Lord Stanley of Alderley said, it creates domestic inefficiencies. It is also expensive for consumers and taxpayers.

An interesting report was published last week by the Institute of Economic Affairs. It included a recalculation of the net cost to this country of the common agricultural policy. It came out with a figure of £6.4 billion per year. That is not something with which we disagree; it is very much within our range of estimates. I can understand how that net cost to consumers troubles my noble friend Lady Wilcox.

Without reform, the European Union will in due course be unable to meet even its existing commitments under the General Agreement on Tariffs and Trade without building up new, unsaleable food surpluses. The European Commission, in its report on strategies for developing relations between the European Community and the associated countries in central and eastern Europe, concluded that the CAP in its present form is not an option for the future. That applies, even given all the uncertainties detailed by the noble Lord, Lord Carter, such as the information that he obtained on his grand tour and the difficulties highlighted by the noble Lord, Lord Mackie of Benshie, when he mentioned the plight of the population generally in the CEE countries. We certainly do not want to find ourselves looking at a system which will increase food prices in the CEE countries for people who are already badly off. The noble Lord, Lord Carter, with his usual perspicacity, outlined the difficulties which would come from trying to combine the CAP, the single market, 10 new countries and umpteen different products. It is clear to him and to us that the devil is in the detail and I am delighted that it is also clear to the noble Lord, Lord Carter, that the devil is not in the landlord.

The report of the European Commission reflected well on some of the messages that we have been pressing with the Commission. Like the committee, we are concerned that the momentum of that exercise should not be lost.

Perhaps I may turn briefly to the associated area of the Europe agreements. The reality is that with agricultural goods market penetration so far has been poor. It is vital that those trade concessions are further liberalised. The European Union claims to be firmly committed to the concept of enlargement. But it must accept the practical consequences of such a commitment and send signals which encourage rather than frustrate. Having said that, I am conscious that my noble friend Lord Mottistone pricked that balloon for me when he

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mentioned the subject of soft fruit. I do not want to say too much on that; my noble friends north of the Border would blow me a raspberry if I did. But we are conscious that we need to make proposals here and hope that we can make proposals beneficial to both the European Union and its CEE suppliers.

I turn briefly from burying the CAP to praising it. The CAP had its roots in the need post-war to create stability and food security in Europe, and we should recognise that in that it has largely succeeded. I do not go along with my noble friend Lord Mottistone in blaming the entire thing on the French and "DG666" as it may be. Whatever we feel about the CAP, the need for the European Union to have some system of regulation for agricultural support is clear. All European countries are committed to supporting farming and rural life.

As was said by the noble Lord, Lord Barber of Tewkesbury, the Germans have a strong emotional attachment to their pattern of small farms and to the communities and environments that it has produced. They are also strongly influenced by green issues. The French take enormous pride in their food industry, quite reasonably. They have a mission to produce and export. They want to see their countryside used and inhabited.

We ourselves are not immune from those emotions. As was mentioned, particularly by the noble Lord, Lord Brain, in reference to the Welsh, we support our hill farmers to such an extent that they are now totally dependent on that support and will be for the future. We do that to support their way of life and the countryside that they have created.

Perhaps compared with the French and the Germans we take what we believe to be a clearer view of the benefits of markets and the disbenefits of subsidies. We see the benefit that comes from separating agricultural support from environmental and social support and of having policies that are clearly directed to the ends one seeks to achieve. But we must recognise that with so much emotion, with so much at stake and with such diversity of interests we will always need the framework of the common agricultural policy to set the rules and to see fair play.

We want to achieve not the destruction of the CAP but its reform. We want to promote an efficient, prosperous and outward-looking agricultural industry able to operate in increasingly open world markets. To achieve that we are pressing for progressive reductions in EU support prices and the removal of production-linked payments which we hope will lead to the reduction of withdrawal and destruction of produce and the other deleterious aspects of intervention. That will in turn permit the removal of the supply controls; for example, the milk quota and set-aside, which are currently applied to keep CAP costs down. Those changes will benefit European Union agriculture, whether "EU" means a community of 15 or a larger community extending to the east.

My noble friend Lord Reay and the noble Lord, Lord Barber of Tewkesbury, among others, correctly drew attention to the underlying mood in France and Germany. Those countries have enormous affection for

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the CAP and a determination to keep it as it is. I do not share the apocalyptic vision of the CAP of the noble Duke, the Duke of Somerset, and my noble friend Lord Pearson of Rannoch. Just as King Canute's courtiers were tamed by the tide, so our partners in Europe will, by the force of events, come to realise that the policies that we are advocating are the right ones. We feel that, however long and tiresome that process may be, we shall come to the right answer in the end.

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