Agriculture

My Lords, I am very pleased to be able to contribute to this debate today, coming as it does at a critical time during the process of transforming agriculture from being production and subsidy-driven to being market-focused and responsive. I thank the noble Lord, Lord Vinson, for introducing the debate. I join other noble Lords in paying tribute to my noble friend Lord Bach. Working with him on the Natural Environment and Rural Communities Bill, I found him approachable, helpful and extremely courteous. Turning to the Front Bench, I give an immediate welcome to my noble friend Lord Rooker, with his renewed responsibilities, and to the new team at Defra. I often think that agriculture makes an ideal area to attack whichever government are in office. After all, we have had a succession of diseases and disasters to contend with against a backcloth of dialogue with our European neighbours about the common agricultural policy. The list reads: TB, brucellosis, IBR, leucosis, BSE, foot and mouth, and TB again, with some diseases being more political than real. It is a risky business, where the Government must foster conditions that produce stability and maintain a balance between competing demands. We have often had debates in your Lordships’ House about whether the glass is half full or half empty. The Government, facing the issues of environment, food and farming, have steered, by and large successfully, along a course of sustainability. I shall try to give the perspective of a dairy farmer in Cheshire, a director of Dairy Farmers of Britain—a co-operative of some 3,000 dairy farmers—having been president of the Royal Association of British Dairy Farmers, and chairman of the Cheshire county Country Land and Business Association. The process of change through reform of the CAP is posing severe challenges. The long-term nature of agricultural decision-making requires time for transition. The statistics of 2005 mirror this trend and highlight the severe, critical economic conditions. Total income has fallen by 8.9 per cent in current prices, 11 per cent in real terms. Average producer prices of agricultural products fell by 3.2 per cent. Total value of output fell by 1.6 per cent. Prices are now 21 per cent below the peak of 1995. The farmers’ share of food prices has fallen by 23 per cent between 1988 and 2005. Since 1998, food prices have risen by only 8.5 per cent, whereas the oil price index is up by 22 per cent. In contrast, in 2005, the average price of agricultural inputs rose by 1.9 per cent. Farmers can only survive by increasing productivity, reducing their unit costs. In 2005, productivity continued to increase by 7 per cent. The result is that 66 per cent of net farm income is less than £20,000. The average full-time farm employee net income is a pitiful £12,500. Within this average, sectors have had varying results. Cereals have fallen by 6.7 per cent where other arable crops are up by 6.6 per cent. The value of wheat production has fallen by 19 per cent. The dairy herd has fallen by 3.1 per cent, whereas beef is up 1.6 per cent. What sort of agriculture will survive? What are the major sector challenges and what actions can the Government take to facilitate success? The immediate challenge is to rectify the implementation of the single payment scheme. This is a failure of administration, not policy. The Government will be proved correct for deciding on a dynamic hybrid model, rewarding farmers for environmental enhancements rather than according to some historic position. This is not to belittle the severe economic impact that the delays in payments have brought to the countryside. Agriculture’s borrowing in the first quarter was a record £9.5 billion, an increase of 11 per cent year on year. While the banks have been responsive, the increase in the drain on resources nevertheless puts real investment under threat. The payments agency is to be congratulated on the fast implementation of partial payments to relieve the situation. I understand that 85.8 per cent of expected total payments have now been paid. Perhaps the Minister can confirm the up-to-date position, priority to claimants for the hill farm allowance and that all payments due will be completed by 30 June. Looking ahead, can the Minister look to make partial payments for 2006 in December of 2006, to boost farmers’ confidence that difficulties will not be repeated? The problems with the mapping process are still to be resolved. Can the Minister report on the progress being made? This is a vital element in many of the environmental schemes for modulated money, and is holding up applications for the entry-level scheme. In 2006, the overall modulation rate will be 10 per cent, up from 5 per cent in 2005. There are fears that the modulation rate could reach 20 per cent in 2007. Can the Minister look at freezing the current rate, and report on Defra’s discussions with the Treasury to confirm 100 per cent matched funding, in the light of the impact these deductions will have without commensurate uptake for modulated money? Within the dairy sector, the challenge lies in the food chain. Supermarkets, capturing an ever-increasing proportion of sales through their position and consolidation, have subjected the supply chain to ever-increasing deflation, as the statistics show. Dairy farmers recognise that scale is imperative along the supply chain. They also recognise that adding value to their raw product is necessary to capture more of the end price. The Government are to be congratulated on setting up English Food and Farming Partnerships to promote co-operation and investment. Can my noble friend confirm that this funding will continue? To achieve scale in production, businesses need confidence to invest. They need confidence that the competition laws are not going to institutionalise their weakness in the supply chain. The co-operative Dairy Farmers of Britain has set a strategy to shorten the supply chain and create brands to offer value-for-money products. Producers must invest, often only to safeguard their position and their vital supermarket contracts, and often without the luxury of expecting higher profits. It is the supermarkets that have the relationship with the consumer, and all that remains for the supplier is to be as efficient as possible and one step ahead of what the supermarket wants. If consolidation cannot proceed to match the consolidation at the retail end, innovation and investment will be jeopardised. In this regard, it is to be regretted that the farm diversification grants are not set to continue to allow time to meet future challenges. In the livestock sector, both beef and dairy, the immediate challenge concerns TB. Your Lordships have debated this topic at length and the industry still looks to the Government to make effective decisions to bring this under control. The problem in wildlife—namely, the badger—must be addressed. It is my belief that the spread out of the south-west and up the west side of England and Wales is commensurate with the development and growing of maize further north. Badgers enjoy maize, increasing the interaction between cattle and themselves. I am continually approached about the inadequacies of the tabular compensation scheme. The higher-value pedigree breeder cannot risk-manage his herd, and his trading ability is compromised by such simplistic compensation. In the beef sector, the lifting of the ban on the export of British beef on 3 May is a huge Government success, some 10 years after the BSE crisis closed the overseas markets. The OTMS is also being wound down and prices have been maintained. One consequence of this is that the first load of calves has just been exported. However, the challenge remains of reducing the amount and scope of regulation. Perhaps my noble friend can look at some of these regulations, which are a consequence of taking ““short cuts”” necessary to make businesses work. Agriculture is in transition. The future lies in tackling costs, building scale, innovating and adding value. As the population becomes further separated from agriculture and the countryside, I pay tribute to the educational charity Farming and Countryside Education, which is behind a scheme to create a whole curriculum year of activities centred around food and farming, supported by the Department for Education and Skills. The work of Jamie Oliver in underlining quality is also important. These are positive signs that point the way for agriculture to prosper.