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6.30 am
The Minister for School Standards (Mr. Stephen Byers): I congratulate the hon. Member for Ribble Valley (Mr. Evans) on securing this debate on a most important issue. I should also like to address the issue that he raised at the beginning of his speech--why I, as a Minister in the Department for Education and Employment, will reply to the debate. As a Minister of State, I shall reply on behalf of the Government. The hon. Gentleman knows why the Minister of State, Ministry of Agriculture was unable to attend the debate, and he should be aware that the Parliamentary Secretary to the Ministry of Agriculture is representing the United Kingdom at the Fisheries Council meeting. It is very important that he discharges those specific responsibilities. I therefore have the opportunity, as a Minister of State, to reply on behalf of the Government to the serious points that have been raised in the debate.
The Government are not turning a blind eye to the constituents mentioned by the hon. Gentleman--whether Cath Wright or the others he mentioned--but are very mindful of the difficulties and problems that they face. However, the difficulties and problems mentioned by the hon. Gentleman did not suddenly emerge on 2 May 1997; many of them are legacies that we inherited from the previous Administration. We are developing policies to address and alleviate the issues and concerns that were mentioned in the debate.
The Government are aware that agriculture is currently going through a difficult time, and there is no doubt that the past year has been a bad time for farm incomes generally and for the livestock sector particularly. Total farming income has fallen in 1997, although it is true that some sectors have fared far better than others. The fall in incomes for the general cropping sector, for example, has been less marked than that for mixed farms or for lowland cattle or sheep farms.
The principal cause of the across-the-board fall in incomes has been the lower prices attracted by all major commodities. Furthermore, as the hon. Gentleman said, sterling's relative strength throughout 1997 has clearly had an effect on the prices that can be achieved by United Kingdom producers.
While sterling remains at its current high levels, and with structural surpluses in most agricultural sectors not only in the United Kingdom but in Europe generally, prospects--certainly in the short term--for increased commodity prices and therefore for improved incomes are not good. However, it is worth pointing out that the longer-term prospects for farmers are perhaps not as gloomy as the hon. Gentleman has said and as other Opposition Members have been very keen to portray. Although, as I said, incomes fell in 1997, that followed some very good years for farming. Incomes rose steadily
from 1990 onwards, rising to a peak in 1995. During that time, sterling was relatively weak, and commodity prices were firm.
In general, that was a good period for the farm industry generally although, clearly, some sectors experienced difficulties throughout the 1990s, and the Government are very mindful of that. Because of the increase in farm incomes that was achieved in the 1990s, business debts could be repaid and farmers could reinvest for the future. As a result, the level of debt experienced in the agricultural sector as a whole is low compared with that in other industries. There is good reason to believe that farmers will come through the present difficult period, although the Government are not complacent about the problems facing farmers.
I deal now with how the Government will tackle farmers' concerns, and why we believe that it is important to take a rational, long-term view of the pressures and needs of the farming industry. Many hon. Members, including Conservatives, have demanded that the Government act to secure the aid available under the European Union's agrimonetary arrangements to offset the strength of the pound. In order to mitigate the effects on farmers' incomes, the argument has been that we need to take that action. It is argued--the hon. Gentleman touched on this point--that we should draw on European Union funds for that purpose. It is also argued that the money is there and that the Government should not ignore the availability of such funds. Those demands ignore several key issues and questions, which have wider implications for the public purse and for taxpayers.
First, those demands ignore the substantial protection that the agrimonetary arrangements automatically give to the value of the common agricultural policy payments against the consequences of the strength of sterling. The rules delay green-rate revaluations, which reduce the value of CAP payments, but allow devaluations, which will increase them, to take effect almost immediately. CAP payments made direct to UK farmers--around 60 per cent. of UK CAP spending--will receive protection under the European Union rules to the tune of around £400 million over two years. That is a considerable contribution by way of protection to the farming industry.
Secondly, such demands ignore the fact that aid has significant implications for public expenditure. European Union rules would allow the UK to pay farmers up to £690 million spread over three years. Up to half that total could be reclaimed from the European Union budget. In practice, however, that compensation is not simply ours for the taking.
As hon. Members will know, the operation of the UK rebate from the European Union budget--a rebate that was negotiated by Baroness Thatcher when she was Prime Minister--means that even paying the EU-reimbursed element of the aid carries significant public expenditure implications for the UK. Broadly speaking, the UK Exchequer would bear around 71 per cent. of the costs of EU-reimbursed aid. Most of the money that we would be spending would be not the European Union's money but the UK taxpayers'. The argument is perhaps not as simple as it is made out to be.
It is also worth bearing it in mind that the legal basis for agrimonetary compensation payments for currency revaluation has been in place since April 1997. In fact, it was introduced in the dying days of the previous Government. Had they wished to do so, the Government could have begun to make payments then, but--despite pressure from farmers' organisations using the same arguments that we have heard today--no such compensation was provided.
Sir Robert Smith (West Aberdeenshire and Kincardine):
The Minister ought to accept that two wrongs do not make a right. The farmers are genuinely concerned not just about where the money is coming from, but about the fact that other European countries are being subsidised to the full.
Mr. Byers:
As I think the hon. Gentleman will know, in the case of some sectors of the United Kingdom farming industry that are under particular pressure, we have been prepared to use European Union support. The Government's policy has been to provide support where it has seemed to be in the national interest. It is worth noting that the previous Government voted to abolish the compensation mechanism completely when it was established at the Agriculture Council meeting last March. That demonstrates their intent all too clearly.
As I have said, the present Government recognise that some sectors are more affected than others by the current situation--which is relevant to the point made by the hon. Member for West Aberdeenshire and Kincardine(Sir R. Smith). That is why, even against a background of tight public expenditure control, we decided to provide some aid for the beef and sheep sectors. In structural terms, those sectors find it most difficult to absorb and adjust to the changes in income generated by green-rate revaluations.
The measures introduced by my right hon. Friend the Minister of Agriculture on 3 February will deliver £72.5 million to the specialist beef sector, in the form of payments made on the basis of eligibility for the 1996 suckler cow premium scheme. The benefits of focusing aid on specialist producers, who have the least flexibility to adapt to revaluation-derived falls in income, should feed through to other parts of the sector--by, for example, helping to ensure a supply of reasonably priced calves to calf finishers, thereby improving finishers' gross margins. We are also making £12.5 million available to the sheepmeat sector. That is targeted aid to the tune of £85 million.
Livestock farmers will receive £1 billion in direct subsidy this year. The Government have also said that they will fund the initial costs of the new cattle-tracing system, and the implementation of specified risk material controls. That will save the industry £70 million. It is clear that farmers are receiving a great deal of support from the taxpayer. That aid is in addition to nearly £1.7 billion of support for the livestock sector as a whole in 1997-98. It is a significant sum in public expenditure terms, by any standards. Total UK expenditure on the common agricultural policy will be £3 billion this year.
We acknowledge that other sectors also face difficulties. The hon. Member for Ribble Valley specifically mentioned the dairy sector, which I know has particular significance in his constituency. He referred to
the difficulties caused by the fall in the price of milk. The price has dropped dramatically over the past 18 months--albeit, perhaps, from very high levels--not only because of the strong pound, but because of strong competition between buyers and sellers. Such competition, however, has been an inevitable consequence of the deregulation of the UK milk market, which the previous Government introduced.
It remains the case that, over the years, dairy farming has been relatively profitable compared with other sectors. The continued strong demand for milk quota, for lease or
for purchase, indicates that there are plenty of producers in the dairy sector who feel that an adequate return can still be gained from dairy farming.
Apart from the effects of a strong currency, the farm incomes problem in the UK has highlighted a more general problem in the European Union--the problem of a long-term structural surplus in agricultural production. The Government recognise--
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