With permission, Mr. Speaker, I should like to make a statement arising out of the discussions last week in Brussels on the common agricultural policy.
Decisions on the main points outstanding were taken at the meeting of the Council of Agricultural Ministers last week. This was the last of a series of meetings at which the steps necessary to implement the agricultural provisions of the Treaty of Accession have been worked out with our partners in the Community. The House has been informed of the progress at various stages of these long and complex negotiations, but I should now like to report on the latest decisions.
Throughout these discussions the Government have had very much in mind the need, first, to ensure a smooth transition from our existing system of guaranteed prices to the CAP, and, second, to maintain a fair balance between the interests of producers and consumers. For consumers there will be no general increase in food prices when we adopt the CAP next month. During the year we shall be taking the first steps towards the Community's prices, but at the start prices in the shops should not be directly affected. Consumers should secure some advantage from the agreement to use a "reference rate", based on the average market rate for sterling in the first part of January, to convert United Kingdom CAP prices in units of account into sterling. As a result, prices in sterling terms will not go up as a result of the continued floating of the pound.
In addition to the question of the parity of sterling, account had to be taken of the rise in world cereals prices since the agreement reached last July. Because of this the intervention price of cereals has been increased in sterling terms, but, given current world cereals prices, market prices will not be affected. At the same time, the compensatory amounts for cereals will be temporarily abated so that they do not exceed the Community levy on third country imports. These measures have been taken into account in the transitional arrangements for pigmeat, eggs and poultry. At current cereal prices the compensatory amounts between the United Kingdom and the Six for fresh pigmeat carcases will commence at around £40 per ton in February and reduce to about £25 a ton on 1st June.
In addition, the Council agreed to our existing bacon stabiliser being phased out between now and 1st June and the feed formula by 1st August. We also announced the abolition of the flexible guarantee. For eggs and poultry, compensatory amounts will be of the order of 1·3p per dozen and 0·8p a pound respectively.
The transitional arrangements agreed for sugar will provide sugar beet growers with the equivalent of the current year's guaranteed price. At the same time, they will ensure that the obligations in respect of the import of Commonwealth sugar covered by Protocol 17 of the Treaty will be met in full. I am in touch with the refiners about the detailed arrangements. It was also agreed that the special arrangements for subsidising the price of sugar to consumers will be phased out by 1st July instead of coming to an end this month as originally intended.
These and other measures decided in Brussels last week need to be looked at alongside the arrangements for other commodities which were agreed last year. Together, I think, they constitute a fair and balanced settlement which will allow us to adopt the CAP with confidence.
The Commission and the Council Secretariat are engaged in carrying through the administrative and legal procedures needed to give effect to the Council's decisions. They now think that it may not be possible to complete this by 1st February and are discussing urgently with us and our partners this afternoon the possible need for a short period of deferment. Our reparations have been made on the basis that we shall adopt the CAP on 1st February, and we would prefer that date. But there were a number of technical matters arising from the decisions reached last week which had to be resolved, and if as a practical matter some deferment is essential for the sake of the smooth adoption of the CAP it would be unrealistic not to accept the need for this.
I thank the right hon. Gentleman for making a statement this afternoon. I am sure that he will agree that it would have been inappropriate to have left this important matter to a written reply such as appeared in last Thursday's HANSARD, not only because the subject matter of the statement is of concern to every housewife and family in the country but because it formally marks the end of an important period in our history—the cheap food era—and the beginning on 1st February of the new experience of the common agricultural policy when we are for the first time brought within the Continental food system. There is no question but that this is a major event.
How does the right hon. Gentleman reconcile his complacent statement that there will be no general increase in food prices when we adopt the CAP next month—unless he is limiting his statement to next month and is not considering the two or three months further ahead—with his statement that the subsidy of roughly £60 a ton paid to British bacon producers is to be phased out not later than 1st June in three monthly stages? He will confirm, no doubt, that £60 a ton works out at roughly 3p per pound on bacon prices.
Secondly, will the right hon. Gentleman explain why, with the phasing out of the sugar subsidy that he has announced, there will be no increase in sugar prices on 1st July?
Will the right hon. Gentleman explain how, since the initial agreements with the Community were made last July, the £ having been devalued by 10 per cent. by the floating of the £ 10 months ago—and we all know that the new exchange rate for sterling in terms of the CAP and the unit of account is 2·35 to the £—he can now say that there will be no increase in food prices in the period ahead? I find that difficult to understand.
What is the Minister's estimate of the extra cost to the British balance of payments of importing food from Europe in 1973 compared with 1972? Finally, how can he reconcile this statement, which is—although the amounts are not specified—clearly an announcement of a considerable onward increase in Britain's food prices, with phase 2 of the Government's prices and incomes policy?
The right hon. Member for Stepney (Mr. Shore) asked a number of questions. I entirely agree with him that there was need for an oral statement. I would have made one towards the end of last week but had to go on to Berlin so I could not be here to make it.
The right hon. Gentleman's first question asked how I could reconcile my statement on prices with the removal of the subsidies on bacon and sugar. I will first deal with the so-called "subsidy" on bacon. The bacon stabiliser has been used, as it were, to stabilise the position between fluctuations. In recent months, we have used it to hold down the price of British cured bacon. It has not affected the far larger supplies of Danish bacon, which have gone up in price considerably over this period. The right hon. Gentleman referred to 3p a pound on bacon prices by June. I do not deny that that is the effect on British bacon, but Danish bacon has already risen in price by substantially more than that amount. Therefore it is not correct to say that the impact will be of that order for the housewife at present.
The right hon. Gentleman then referred to sugar. We had intended initially to remove the subsidy at the end of the year. It is a temporary subsidy and has nothing to do with the EEC. The EEC has agreed to its continuance for a longer period, however, in order to help us following our entry. It is a concession to help the British housewife.
The right hon. Gentleman next referred to the depreciation in the value of the £. The arrangements we made on cereals, which are extremely important and which took account of this depreciation, were the best way to safeguard the position both of consumers and of producers here, and they take account of the factual position which has arisen. But what is far more important at present with regard to food prices is the change in world conditions—the rise in world prices of cereals, which has put them way above these figures anyway. This has been a minor amendment in the context of the figures in present conditions, which could have any effect only if world prices fall again.
I congratulate my right hon. Friend on the broadly successful outcome to these negotiations after some extremely tough and exhausting bargaining. What effect, if any, will the agreement have on the pattern of home agricultural production? In particular, will my right hon. Friend give his view of the future of the egg-producing industry?
I am grateful to my hon. Friend for what he said. These were, indeed, tough negotiations. However, I think that they were fair and produced a fair result. I believe that for home production we have now removed the uncertainty. Home producers now know precisely where they stand, and what is important to home producers is very important to the housewives as well, because if home producers do not expand production the problem of world shortages will be worse. These arrangements help.
Our egg producers have a special problem, which I recognise. We made the best arrangement we could within the terms of the Treaty of Accession and I am confident that over the long term our egg producers will be able to compete effectively and will be encouraged, I hope, as a result of what we have got here to expand production.
The right hon. Gentleman has made a complicated and important statement which I hope we can debate very soon. He made the point that there would be no general increase in food prices. Will he now answer the question put to him by my right hon. Friend the Member for Stepney (Mr. Shore) concerning over which period of time he meant?
Does the right hon. Gentleman foresee specific increases, and, if so, in what commodities?
Secondly, the right hon. Gentleman said that prices in the shops will not be directly affected. Precisely what does he mean by that? Will he clarify the point and say whether he expects to see any direct effect on shop prices? Lastly, if the stabiliser and the flexible guarantee go, will this not be a considerable blow to the British bacon producers? Will it not result in their having a far smaller share of the market than now?
The right hon. Gentleman referred to the question of a general increase in food prices. I explained what would be the impact of the agreements we arrived at last week. I did not say that there will be no general increase in food prices as a whole. I could not say that, because world conditions have changed the pattern of world prices to such an extent that they have risen to the extent we have seen, and there will be further increases.
As for the commodities referred to by the right hon. Member for Stepney, there will be increases over the coming months, and I have explained the position in regard to that. By extending the phasing out of our current arrangements in the way we plan, we believe that we have the best outcome because these are concessions on the rules which the EEC has extended to this country.
On the question of the bacon stabiliser and flexible guarantee, it is true that the removal of the stabiliser could have some impact, but I think that the producers and curers recognise that the important thing was to get the lowest possible compensatory amounts. By treating the matter in this way, we got these amounts, which will provide a long-term assurance. I think that the producers generally will not be sorry to see the flexible guarantee go.
I wish to put two questions to my right hon. Friend in the specific context of Northern Ireland. The first concerns eggs. Is my right hon. Friend aware that there is anxiety in the industry in Northern Ireland about the possibility of the removal of the 1p per dozen subsidy, which makes the difference between solvency and bankruptcy? What is the position, following these negotiations, with regard to that subsidy, bearing in mind the conflicting Press reports in Northern Ireland?
Secondly, will my right hon. Friend bear in mind that the disparity in intervention levels and compensatory payments is also causing anxiety in Northern Ireland? On the question of pig-meat, could he say whether the arrangements made will prevent the massive smuggling of pigs from North to South which is feared in some quarters?
I recognise the special problems of Northern Ireland and I was happy to have with me in the negotiations one of my hon. Friends from the Northern Ireland Department. The egg subsidy was, of course, temporary. We have agreed that it will phase out by the end of the year, and that is what was intended originally in any case. Under the arrangements for pig-meat, the differentiation between our price level and that of the Irish Republic is such that there need be no fear, since it is so small, of any smuggling such as my hon. Friend mentioned.
Food prices have risen 25 per cent., which is twice as fast as the right hon. Gentleman prophesied for the transitional period. Meat, cereal and sugar prices are all up. Indeed, some prices—for cereals in particular—are above the Common Market target prices now. Is there not, therefore, a strong case if not for scrapping then at least for shortening the transitional period and thereby avoiding some of these rather complicated negotiations?
I take the point, although I fear that I cannot agree with the hon. Gentleman, for it would mean committing ourselves to accepting a very high current level of cereal prices when world prices could well fall again. Although we have accepted one additional tranche by accepting the effects of the depreciation in the value of the £, I do not believe that it would be right to go further. It would be acting against the consumers' interests to do what the hon. Gentleman suggests. The hon. Gentleman referred to the 25 per cent. rise in food prices. Such food price increases as have taken place have been nothing to do with the Common Market but have been the result of world conditions and a very sharp rise in world prices.
In view of the close concern of British farmers and of the worries of most housewives over food prices, will my right hon. Friend take an early opportunity to explain to the public in detail the implications of what is necessarily a very complicated statement? I must confess that in some respects to me it is almost incomprehensible.
While no doubt my right hon. Friend is right in saying that in the end the larger producer of eggs will be fully competitive, does not he agree that in the short run medium and small producers will have a very bad time in view of the rising cereal prices? Has he any words of hope for them?
I agree that it is necessary to explain to the public these very complicated matters and I will seek to do what I can in this respect.
I understand my hon. Friend's concern about the small producers of eggs. The penalties of competition are very severe in this part of the industry and at the moment our small egg producers are having a difficult time. The important thing was to get the compensatory amendments as low as we could, and under the terms of the Treaty of Accession we got the best deal possible, in my belief. I am confident that if they can continue they will find that opportunities will improve, because the terms of competition between them and egg producers in other countries of the EEC will be equal, and I am sure that the average efficiency in this country is at least as great as that on the Continent.
Reverting to the important matter of the adoption of a reference rate based on the average market rate for sterling which the Minister says will result in prices not going up as a result of the continued floating of the £, may I ask the right hon. Gentleman who raised the question of a reference rate? Was it put forward by the Minister or by his colleagues? If he has now accepted the fact that we shall fix these prices in sterling terms at 2·35, is not the obvious implication that the Government never expected within a foreseeable period the rate of sterling to rise above 2·35?
No. I appreciate that this is a complicated matter which the right hon. Gentleman may have some difficulty in understanding, and perhaps I can explain it to him. The position is that we have accepted a reference rate proposed by the Commission and based on the average rate for sterling during the first half of January. We have also agreed that if there is any further variation in the sterling rate we will accept modifications by using what is called a monetary compensatory amount to take account of such variations. There is no question of accepting it as a permanent feature. There is provision for variation later if need should arise, and it would be on the basis of a monetary compensatory amount.
Although as yet I cannot pretend fully to understand this matter, may I ask the Minister this straightforward question. May I take it that we shall not be paying for the food we import in sterling but will pay for it in French francs, Belgian francs and Italian lire? Therefore, will not the real cost, as opposed to the sterling cost, obviously be higher as a result of devaluation?
No. The effect of what we determined last week does not vary that position at all. We shall pay in terms of the currency concerned. What we were considering here was the calculation of the compensatory amounts concerned, but these are amounts paid out of FEOGA to balance the difference in prices. Payments for food will be in direct terms in the currency concerned.
Does it not follow that prices will be bound to go up and that the statement is misleading?
Although the concept of free trade sits uneasily on the shoulders of the right hon. Member for Stepney (Mr. Shore), may I pursue the question which he raised on the issue of prices? The right hon. Member for Anglesey (Mr. Cledwyn Hughes) misheard the Minister when he quoted him as having said that prices in the shops will not go up. What the Minister said was that they should not go up. Since these statements are usually very carefully prepared, did the Minister have in mind the fact that over the last year farm gate prices have in some cases declined at the same time as retail prices have risen? If that is the case, can he say what action he intends to take to see that this does not happen in the year to come?
In reply to the first point, what I said was that at the start prices in the shops should not be directly affected—those were my words. In regard to the point about farm gate prices having risen, I must point out that since 8th November when we introduced the standstill we have established that margins should be controlled and we have seen that margins have in fact been controlled in the food trade. But where prices have risen as a result of demand or shortage of supply, these have had to be reflected in retail price levels. Therefore, the general position is that prices are responding to market demand, which is what happens to fresh food prices at all times.
May I seek your protection, Mr. Speaker, on a matter which arises from the statement made to the House a few moments ago by the Minister of Agriculture. Can you prevent a recurrence of the disrespect shown to the House last Wednesday when the Government sought to slip through this important statement in the guise of a Written Answer?