Food and Wine Exports (Soviet Union)

Schedule 6 – in the House of Commons at 6:39 am on 25th July 1984.

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Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East 6:39 am, 25th July 1984

I am glad to have the opportunity to raise the subject of the export of subsidised food and wine to the Soviet Union and its allies. I appreciate the courtesy of my hon. Friend the Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food being present to answer the debate, despite the outrageously late hour, because I know of the immense burden of work that she has to do. I also have the unexpected privilege of the attendance of the hon. Member for Livingston (Mr. Cook), who leads for the Opposition on these matters and probably knows more than I do about the subject.

I wish to draw attention to the dramatic increase in the sale of highly subsidised food and wine to the Soviet Union and its allies. If we look at the figures, we get an idea of the scale of the problem. In 1979, when the Government came to power, a great deal of concern was expressed about the dramatic increase in the sales of cheap food by the Common Market to the Soviet Union and its allies. In 1979 we sold 3 million tonnes of cheap food and wine to the Soviet Union and its allies. By 1982, the figure had risen to 6 million tonnes, and this year it looks like being well over 8 million tonnes. The fact is that in the first nine months of 1983 we sent 164,000 tonnes of highly subsidised food to the Comecon bloc every week. Since the Government came to power, exports of cheap food to the Soviet Union alone have increased fivefold. That was not a consequence of the Government coming to power, as it was a Common Market decision. We exported 1 million tonnes in 1979 and 3·5 million tonnes in 1982, and the latest signs are that the figure for 1983 is at least 5 million tonnes.

Even more worrying are the crazy prices at which we are selling and dumping food. I went to one of the local supermarkets in Southend last week to look at prices. After a great deal of trouble, the Ministry has provided me with the prices at which we supply such food to the Soviet Union. In shops in Southend, beef was about £3·20 per pound. We sell it to the Russians at 40p a pound. We pay 25p a pound for sugar, but the Russians get it at 7p a pound. We pay about £1·30 a pound for butter, but the Russians get it at 53 p a pound, and it seems that that price is going down sharply following the Commission's decision only yesterday. We pay 25p a pound for flour; the Russians get it at 5p a pound. We pay about £2·50 for a litre of reasonable wine; we give the Russians wine at an astonishing 7p per litre. At one time I thought that it was a devious plot to undermine the Soviet economy by spreading alcoholism, but Russian citizens do not get the wine at those prices.

Those prices are available through the normal export rebates provided by the Common Market Commission, but there are also special deals under which the Cornmission agrees to provide food to Russia at even cheaper rates to alleviate the special problems of surplus. It is worrying that that is not a unanimous decision. The Commission makes its decision and passes it on to the management committee, in which we have only one voice and in which majority voting applies. Although, as the Prime Minister has made abundantly clear, we oppose those special deals to give the Russians food at knock-down prices, there is nothing whatsoever that we as a country can do about it unless we get other Common Market nations to support us.

What is the effect of the sales? First, there is a dramatic boost to the Comecon economies and to the Soviet treasury. The Soviets get the food at these cheap prices, but Russian housewives do not get it at the same prices. A major mark-up is imposed by the Soviet authorities, and they keep the difference. Frankly, I do not mind—I am sure that you, Mr. Deputy Speaker, and the hon. Member for Livingston do not mind — paying taxes at a reasonable level to defend ourselves against possible Soviet aggression. However, I object strongly to paying even higher taxes to subsidise the growth of the Soviet war machine and the invasion of Afghanistan. In effect, that is what we are doing through these massive sales of cheap food to Russia.

What is the cost to the Common Market and to us of exporting cheap food? I have tried and the Government have tried to get the information, but the Commmon Market adopts a policy of not recording where each particular subsidy goes. Indeed, there is considerable doubt about whether the food actually goes to the alleged destination. However, we know that the Common Market spends one third of every penny on the dumping and destruction of surplus foodstuffs. We also know that in 1982–83 about one fifth of all the dumping of cheap food was in the Soviet Union; and that the Common market expended £4,750 million on the dumping and destruction of food.

It is reasonable to assume, in the absence of detailed figures, which the Government unfortunately cannot provide, despite all their attempts, that the Common market is therefore giving a straight subsidy of almost £1,000 million a year to the Soviet and other Eastern bloc economies. That is an immense amount of money. It means that £2·5 million is being spent every day of the week, including Saturdays and Sundays, to subsidise the export of cheap food and wine to the Soviet Union. It means that we are spending £100,000 every hour of each day to subsidise cheap food to Russia. You, Mr. Speaker, will be staggered to learn—I know how conscientiously you sit through our debates — and Ministers with responsibility for housing, who have great problems getting enough cash to carry out necessary work, will be especially interested to know, that since this sitting started, we have spent more than £1 million subsidising cheap food and wine to the Soviet Union. That is madness.

I find it extremely difficult to explain to my constituents why we must impose exceedingly strict guidelines, and sometimes cuts, on necessary public expenditure, such as local authorities, schools, hospitals and roads, while at the same time we spend more than £2·5 million every day providing subsidies to enable the Russians, the east Germans, the Bulgarians and the Czechoslovaks to buy food at infinitely cheaper prices than we can.

Apart from the damage that does to us and the benefit it affords to the Russians, the Minister will be as anxious as I am about the effect of such dumping practices on the economies of the Third world. We must face the fact that these costly dumping exercises inevitably cause poverty, distress, hardship and hunger throughout the Third world by denying it a reasonable return for its agricultural produce.

I know that considerable quantities of food are given free to some parts of the Third world. Much of it goes to Ethiopia, although, sadly, not to the people, but to the army, which is invading another country. No one has sought to deny that by constantly dumping cheap food on the world market and in eastern Europe we are depressing world prices. Sadly, the inevitable result is that the Third world is having a dreadful time. Many of Third world countries can neither pay their debts nor maintain reasonable living standards. All their economies start by producing food and then industrial goods. The EEC should be thoroughly ashamed of the fact that its policy of dumping surpluses is causing hardship, poverty and distress to the Third world.

We should think about the consequences of the policy for some of our friends. I was interested to read in this morning's paper—by which I mean Thursday —the statement made by some New Zealand officials about the Common Market Commission's astonishing decision to sell an extra 150,000 tonnes of surplus butter to the Soviet Union and the middle east. New Zealanders, understandably, are outraged by that. The inevitable result will be to depress world prices even further, and to make it even more difficult for New Zealand to sell what it wishes. I appreciate that the Government have fought hard for New Zealand in the Common Market Council, but some of our farmers are saying, "The New Zealanders have now had 10 years to find other markets. Why should we have our surpluses added to by the small amount of butter that comes from New Zealand?"

Unfortunately, New Zealand cannot go to other markets. When it goes to other markets—effectively, the middle east and the Soviet Union — it finds that Common Market salesmen have been there before it offering butter at knock-down prices.

The cheap sales are also damaging to our economy. Unfortunately, although we are providing cheap food to the Soviet Union, the inevitable consequence is that we have to charge high prices at home. If we have a high-price economy — unfortunately, with the new common agricultural-type policies for the steel industry at present being drawn up by the Common Market—the danger is that our economy will be undernimed because high prices for food inevitably mean higher wages and industrial costs.

This desperately serious situation is becoming worse and worse. Surpluses are growing alarmingly. The dumping of food in the Soviet Union and the Eastern bloc is not just increasing alarmingly but becoming more costly as more dumping depresses prices even further.

I doubt whether the Government or the Minister would argue with what I am saying, because the Government and the Prime Minister have deplored these cheap sales. They have said, "We vote against them in the Management Committee whenever the opportunity arises." Can we do anything about the dumping? It was sincerely thought by the Foreign and Commonwealth Office that if it could achieve strict guidelines on expenditure within the Common Market, it might somehow reduce the surpluses and the amount of dumping.

After the Fontainebleau summit, at which the Prime Minister undoubtedly tried hard to achieve a fair settlement, some people thought that something might happen. Unfortunately, yesterday we saw what happened. We have a strict expenditure guideline for this year, because we have the 1 per cent. VAT. But what is happening about the control of expenditure? What is happening about the export of cheap food to Russia? Despite the fact that there is no money available, and no money voted, the Common Market Commission has agreed to dump another 150,000 tonnes of cheap butter at an especially low price.

The Commission has described that as a trial of strength with the Council of Ministers, but, as my hon. Friend the Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs said in the House yesterday, it is a decision which goes not to the Council of Ministers, which we can stop by a veto, but to the Management Committee, in which we have only one voice.

I do not doubt the determination of my right hon. Friend the Prime Minister or of my hon. Friend the Parliamentary Secretary to argue against these special cheap sales, but what worries me is whether there is anything that we can do with the Common Market machine as it now is. My understanding is that my hon. Friend the Under-Secretary of State said yesterday that we have only one voice in the Management Committee.

The second suggestion put forward to try to solve the problem of cheap food being dumped in the Soviet Union, is that the long process of quotas and possible reductions in the real value of prices might bring down surplus food production. I wish that that were true. I wish that I could look with some confidence to that solution.

However, the only tiny adjustment made in the Common Market food programme—in dairy produce—is still going to leave us with a substantial surplus. Sadly, the signs are that, while we shall honestly adhere to the quota arrangements, other Common Market nations will not. That is probably why, in a recent debate, my right hon. Friend the Minister made it abundantly clear that if other countries were not going to impose the levies and abide by the quotas, we would have to tear them up. The same thing happened with steel. We all agreed to cut back on our capacity. We have cut back on manpower by over a half since 1979, but some of the other countries have made only promises. In fact, one country has actually increased its capacity.

I know that the Government are working hard, but they are up against many things, such as the other nations and the Management Committee, which, sadly, are not prepared to do anything about the export of cheap food to Russia. There is also the enlargement problem, which will inevitably make the surpluses worse, because the agricultural potential of the new members, particularly Spain, is vast. It will be difficult to control them. We are also up against our agriculture industry. This is not just farmers fighting for a privileged position. If we cut production throughout the European Community, that is bound to involve our farmers, who do not produce a surplus of food, although there is a surplus of dairy products. Our farmers will have their throats cut because of surpluses on the continent.

This will be a difficult road for the Government to ride. They will find it easier to go to our farmers and tell them that all Europe has to cut back, and that, where there are surpluses, production will be reduced. However, there is not the slightest possibility of that happening.

How will we solve this problem of the ever-increasing sales of cheap food to Russia? The Government will encounter enormous problems. I do not know how this particular problem can be overcome. I do not know how we shall overcome the problem of the Management Committee votes, or how we shall cope with agricultural protection in an enlarged Community. I do not see how the Government can persuade our farmers to reduce their production dramatically because of the surpluses in Europe.

Is the situation hopeless? I do not think so. In the short term, we could make a small contribution to controlling these outrageous dumping practices by not agreeing to increase the resources of the EEC. Although the Commission will probably spend money that it does not have, in the longer term, if we deprive it of the extra 0·4 per cent. of VAT, that could have some curbing effect on the amount that it spends on export rebates for dumping goods, particularly in the Soviet Union and Bulgaria.

In the long term, we should set our sights on at least making it clear that the kind of Common Market that we would like is one with no resources at all, in which every member state would look after its own social policy, regional policy and agricultural policy. Hon. Members must be aware that what is tearing the Common Market apart and preventing us from getting on with bringing down trade barriers and increasing co-operation is the problem of resources— arguing over the money, how much there is, who gets it and where it goes. Sadly, that will take up more and more Common Market time.

What a much better Common Market and co-operative exercise it would be if we did not have any resources and left spending decisions to the member states. This is not pie in the sky, because we see it happening in the EFTA countries. They are working together extremely well, simply to get rid of trade barriers and to increase political co-operation. EFTA works with 70 civil servants, while the Common Market has over 12,000 working on export rebates for the Soviet union and other items. EFTA countries' growth is better, and their unemployment is much lower than ours. We must consider a long-term solution of that sort if we are to deal with the problem of the enormous growth in exports of cheap food and wine to the Soviet Union.

There are three somewhat minor points on which I should like advice from the Minister. As I have not been able to give her notice of my intention to raise them. I shall understand if she is not able to respond tonight, in which case I hope that she will write to me on them in due course.

First, is there any way in which the United Kingdom can stop the Commission overspending, or spending more than has been agreed by the Council of Ministers, on the sale of cheap food to Russia? It seems that we cannot. However, can we in anyway restrain the Common Market from indulging in these cheap sales?

Secondly, at what price did the Commission agree yesterday to export butter to the Soviet Union? The average is 53p per pound, which is consistent with the normal rebate, compared with our £1·30 per pound. The Commission makes special deals at specially low prices. That happened yesterday, when it agreed to sell Russia an extra 150,000 tonnes. I appreciate that it is difficult co obtain figures relating to confidential commercial sales, but for special deals which go before the Management Committee, it is usually possible to get an idea of the price.

Thirdly, is my hon. Friend satisfied that we are operating the export rebates in such a way as to ensure that we get a fair deal from the Commission? We are aware of the Intervention Board for Agricultural Production having paid £4 million in subsidy to a Dutch firm for the export of butter to Cuba. As is well known the Customs and Excise made it clear to the intervention board that the butter was going not to Cuba but to the Soviet Union. I gather that NATO's interception service passed on information to the Customs and Excise and the Foreign and Commonwealth Office, if not to the intervention board and the Ministry of Agriculture to the effect that the ship with butter for Cuba was going to Russia.

The intervention board should have been alerted by the fact that Cuba did not import any butter the year before the Russian invasion of Afghanistan, whereas after the invasion, when a ban was placed on export rebates to Russia for butter only, there was an apparent dramatic increase in the consumption of butter by Cuba.

We have paid over money and given the Dutch firm back its guarantee. Normally, we would get the subsidies back from the Common Market. Will we get the money back? I have a sinking feeling that we will not and that the £4 million will have to come out of the British taxpayers' pocket instead of out of the Common Market. We always seem to play fair.

I appeal to the Minister to ensure that payments made to Mr. Daniel Telliez of Boulogne will be paid by the French Government, not by Britain. Hon. Members may recall this recent case of abuse of Common Market funds. Mr. Telliez was a school teacher in Boulogne. On a salary of only £100 a week, he managed to own 19 cars, five blocks of flats and three holiday homes. Although he had only 18 pupils in his school, he filled in a form, which he sent to the French equivalent of our intervention board, asking for a Common Market subsidy for school milk for no fewer than 22,000 children. As I say, he had only 18 pupils in his school, and the population of his village was 500. He did this consistently for two and a half years, and received £750,000 in Common Market subsidy for milk for his non-existent school children. That could, and probably would, have gone on indefinitely had it not been for the clever French income tax authorities, which could not understand how a teacher with a salary of £100 a week could own 19 motor cars, and so on. He was eventually caught, and appeared before a French court.

If we ourselves are to pay the £4 million that we inadvertently and, in my view, wrongly paid to the Dutch firm to enable it to export cheap butter to Russia, via Cuba — although it never went to Cuba — I hope that the Government will ensure that the French Government are responsible for the £750,000 that they paid for Mr. Telliez's 22,000 non-existent schoolchildren.

That is only the tip of the iceberg. The Minister will be aware of the scandalous way in which Common Market funds go through the Italian Government, almost directly to the Mafia, for the destruction of non-existent tomatoes. The details are well recorded, even by the Court of Auditors of the Commission. It is happening throughout the Common Market, and it is one of the greatest rackets ever. I am worried that, although Britain appears to go by the rules, there is no incentive to other member states to economise or to cut spending, because it is the EEC's money, not theirs. Does my hon. Friend believe that the intervention board can get the £4 million from the Common Market, or must we pay it ourselves?

The problem is extremely disturbing. For those who are opposed to the Common Market, the issue of cheap food sales to Russia has been used as a rallying point. Everyone becomes annoyed about it, and it is much talked about. Rightly, it has been the nit-picking problem that we put at public meetings and elsewhere. But the problem is out of control. It is not a small problem. It is an enormous boost to the Soviet Union and to the economies of eastern Europe. The problem is growing constantly and dramatically, and we are at least entitled to discuss the best ways of stopping it. When we spend more than £2 million a day simply to subsidise the export of cheap food and wine to the Soviet Union — in effect when we send enough wine to provide every Russian household with three litres of wine at 7p a litre to toast the invasion of Afghanistan—we should ask ourselves, "What can be done?"

I fully appreciate that Britain cannot do this alone. We can do it only within the Common Market. I hope that the raising of this matter will make a small contribution to urging the Government, even more than at present, to work as hard as possible in the EEC to find a solution to an international scandal that is desperately unfair to our nation, our taxpayers and our consumers.

Photo of Robin Cook Robin Cook , Livingston 7:07 am, 25th July 1984

The hon. Member for Southend, East (Mr. Taylor) is to be congratulated on having raised this extremely topical debate. However, I cannot resist telling the hon. Gentleman that we are somewhat adrift of the estimate that he gave me yesterday afternoon of when we would reach the debate, which he suggested would be at 11.30 pm. With such errors in his calculation, he will never make it to the Government Whip's Office.

The debate has focused attention on a rather bizarre consequence of the CAP. It confers a benefit on the Soviet Union, but that benefit is not passed on direct to consumers in the Soviet Union but is pocketed by the state, because it sells to its consumers the goods on which we provide a subsidy at a handsome profit to the Politburo. That is an eccentricity which we can observe on the surface of the CAP, but in debating it we should not lose sight of the fact that the roots of this eccentricity lie buried in the structure of the CAP, and especially two consequences of it.

The first is the surreal surpluses to which the policy gives rise. Two specific surpluses are relevant to our debate. The first is the butter surplus. I noted that when the Commission announced the latest tranche of sales to the Soviet Union it produced a new estimate of the growth of the butter surplus, which continues remorselessly to rise. It now estimates that, on present trends, by the end of the decade we shall have 1·8 million tonnes of butter in intervention stores. That is a staggering total.

The fact that the total is growing puts in perspective the claims made in the spring that the agricultural settlement had finally brought the Common Market agriculture policy under control and would regulate the growth of the surpluses. Indeed, I noticed that the official who announced the sale of butter to the Soviet Union earlier this week said: These latest measures do not amount to much unless the member states do more to cut dairy production. It is clear that the Commission is not persuaded that the spring measures have done much to control dairy production. Indeed, we are increasingly aware that many states across the Channel are doing little to enforce even the cuts agreed in the spring measures.

The position on the wine surplus is, if anything, even worse. About one third of all the wine produced in the Common Market is being bought into intervention. I notice that the Minister of Agriculture recently produced an estimate of the growth of the proportion being taken into intervention. He estimates that, on present trends, we shall soon be taking into intervention not one third of all the wine produced in the Common Market but about half the table wine produced in the Common Market.

The system has clearly gone awry if we end up with not merely a proportion of excess production being bought into intervention, but half the total annual production being bought into intervention because no one in the Common Market wants to buy it. There is substantial evidence that some really rotten wine is being produced by manufacturers who would not dream of creating that rotten wine to sell on the open market. They are producing it because they know that they are guaranteed a purchaser, in the shape of the Commission, who will buy wine which no one, even with a palate of lead, would dream of buying on the open market.

The second source of the problem with which we have to grapple in the debate is the high cost of Common Market production. The surpluses are locked into storage because of the high price that was paid for them in the first place. If Common Market prices were not so high in relative terms, wine, butter and other products would be sold on the world market. They cannot be sold on that market because the price paid for them is so much higher than the world price.

According to Commission estimates released this week, we in the Common Market are still paying twice as much for butter as the average world market price. I suspect that I may have some sympathy from hon. Members present when I say that that fact gives the lie to many of the promises offered to the nation in 1975, when we were repeatedly assured that the price of food in the Common Market would fall into line with the price in the world market as world shortages forced up the price outside the Common Market. That has not happened. If anything, the gap has increased rather than diminished in the decade since then.

Both those points form the root of the problem to which the hon. Member for Southend, East has pointed. Nevertheless, there are three other points relating to the issue that he has raised with such eloquence and perspicacity to which I shall address my mind and to which I should like a response from the Parliamentary Secretary.

The first is the curious parallel decision by the Commission—at the same time as it decided to extend largesse to the Soviet Union; to the Government and not the people of the Soviet Union—to postpone a decision to release stocks of the butter, at a subsidised price, to European consumers such as pensioners.

I understand that when the Commission considered the matter it had before it a proposal that as well as selling the butter to the Soviet Union it should make available a Christmas bonus, as it were, to Common Market pensioners, who are easily identifiable, who are numerous and who could make a significant hole in the butter mountain. Indeed, they would welcome the opportunity to obtain butter at the price at which it is being made available to the Politburo and the Kremlin.

I find the decisions to postpone any commitment to such a sale offensive when the Commission is acting with such haste and impatience to carry through the sale to the Soviet Union. If the only way of diminishing the mountain of butter is to offload it on to the Soviet Union's allies, we are entitled to expect the Commission, for political if not economic reasons, to accept the case for making the butter available on equally advantageous terms to those within the Common Market who are in need.

There is a curious obverse side to the benefit that we are conferring on the Soviet Union, in that the benefit is paralleled by disadvantage to our allies. The hon. Member for Southend, East referred to the effect that sales of butter will have on the Third world. On the whole, Third-world countries tend not to be major dairy producers, especially not producers of butter. The major dairy producers are the countries within the Western world, especially Australia, New Zealand and North America. They are the countries that will suffer when the butter is dumped on the world market at below world market prices.

As I understand from the Commission's statement this week, it proposes to sell the butter at the GATT price, which is currently significantly below the operative world market price. The Common Market will therefore be undercutting sales by America, New Zealand and Australia. In other words, at the very same time when we are conferring a benefit on a country which the Government affect to regard as a threat, we are damaging the economics of countries which are clearly our allies. We could not achieve an outcome more perverse in its economic consequences for the distribution of world power. If the sale of butter is to take place, it should surely be at the world market price at which our competitors are prepared to make butter available. If the sale were to take place at the world market price, it would still involve a substantial subsidy.

I move on to my third and most perplexing argument. Apparently it will cost more to make the sale to the Russians than the proceeds of the sale will realise. I note that the Foreign Office's package of measures designed to bring Common Market expenditure under control includes the proposition that we should save 150 million ECU by postponing any subsidised sale of butter on the world market to the Soviets or anyone else. As we all know, the Commission has overcome that proposition by the simple device of ignoring the Council of Ministers. That must cast genuine doubt on the promises that we have heard in recent months about the growing financial discipline that is being placed on the Common Market. If we ever achieve agreement within the Common Market on financial disciplin at the level of the Council of Ministers, we shall discover even more management committees which axe not bound by that discipline.

Why does it cost us money to sell the butter? Selling butter must surely always be cheaper than not doing so, even if we are selling it to the Soviet Union. I presume that it will cost 150 million ECU this year to make the sale to the Soviet Union, because in making the sale the Commission is obliged to write off a loss on its assets, but in the real world the loss was sustained at the moment when the Commission found itself stuck with stocks of butter and wine which no one wanted to buy. The idea that these stocks represent an asset at face value is one that is possible only in the fantasy world in which the Commission operates. I ask the Minister to explain to the House how it can be cheaper to store butter at a cost of about £1 million a day than to sell it to anyone, be it the Soviet Union of wherever. If the Minister can satisfactorily explain that conundrum to me now, I shall be adequately rewarded for having sat here through the watches of the night.

Photo of Mrs Peggy Fenner Mrs Peggy Fenner , Medway 7:20 am, 25th July 1984

I know that my hon. Friend the Member for Southend, East (Mr. Taylor) feels very strongly about this matter. He has made similar speeches many times. However, I must correct him on one point. When he compared prices in the United Kingdom with those in the Soviet Union, he was comparing a retail United Kingdom price—£2·50 a litre for wine—with wholesale prices for wine exported to the Soviet Union. I am sure that my hon. Friend will accept that that is so.

The need for subsidised food exports to the USSR and its allies is of course one manifestation of the wider problem facing the common agricultural policy—that of surplus production for which there is no economic outlet.

To summarise the main thrust of the Government's approach to this problem, it is to tackle the disease rather than the symptoms. Our aim is to bring supply and demand into better balance primarily by acting on the level of prices but also, where appropriate, by using other mechanisms. This year, as the House will know, a major step was taken in the right direction when average support prices were reduced for the first time — although a British Minister had previously been defeated in a vote on the issue — and special measures were introduced to limit milk production.

These were not easy decisions for the Agriculture Council to take. Certainly they were not popular with producers in the United Kingdom or in other member states. Nevertheless, it is to be welcomed that the Council of Ministers has shown that it is capable—albeit, some might think, somewhat belatedly—of acting to contain CAP costs as successive United Kingdom Ministers of Agriculture have argued. This is, however, only a first step. We have made it clear that further action will be needed over the coming years, notably to contain costs in the cereals and wine sectors where there is chronic overproduction.

In the short term, we have to recognise that surpluses exist and that something has to be done with them. There are of course schemes to encourage consumption within the Community and a certain volume is exported as food aid, but these methods alone could not provide sufficient outlets. It is a fact of life that in most cases the cheapest way of disposing of surpluses is by export, even taking into account the need to pay export refunds, which are sometimes substantial. The refunds are in general pitched at levels which enable Community produce to be sold on the world market at the going price — the price of competing supplies. I must emphasise that these refunds do not directly benefit the importing country which would, if Community produce were not available, be able to buy equivalent produce from elsewhere at much the same price.

That is an important point. The fact that the Soviet Union and her allies are major purchasers of foodstuffs from the Community as well as from other major food exporters reflects the failure of the Soviet agricutural system. The collective system is quite simply less effective than ours, which relies on individual enterprise. If Community prices were not competitive, the Soviet Union would still be able to buy equivalent supplies at similar prices elsewhere. Peculiar though it seems, the Soviet Union is not therefore the main beneficiary from its imports of food from the Community. The Community is the main beneficiary because, without the exports, the cost of the common agriculture policy would increase. The British taxpayer would suffer if, in current circumstances when substantial surpluses needed to be disposed of, we refused to export to the Soviet Union.

Photo of Mr Teddy Taylor Mr Teddy Taylor , Southend East

Does my hon. Friend agree that if we did not dump so much food on the world market, world prices would not be so low and therefore the export rebates would not be quite so large? Is it not the dumping by the Common Market that artificially depresses world prices?

Photo of Mrs Peggy Fenner Mrs Peggy Fenner , Medway

I started by saying that the disease was the surplus. It is not a case of dumping but of having a surplus. The Community's earnest intention to deal with surpluses is demonstrated by the measures that we have taken this year in regard to the dairy industry. I understand that my hon. Friend might think that we have taken these measures belatedly. British taxpayers would suffer if we refused to export to the Soviet Union, bearing in mind our substantial surpluses.

In 1980, the Community decided to support the United States' partial embargo on food sales to the Soviet Union following the invasion of Afghanistan by ensuring that Community produce did not replace United States supplies. The United States renewed its sales to the Soviet Union in 1981 and the fact is that, unpalatable though it may be, in current conditions any attempt by the Community alone to ban exports to the Soviet Union would increase the cost of the CAP without hitting the importing countries.

We have, however, always made it clear that we would strongly oppose any arrangements which conferred a positive benefit on the Soviet Union by offering it preferential terms which are not available to other buyers. That has been our consistent stance. I have seen the reports, to which my hon. Friend referred, that the Commission is contemplating exporting later this year large amounts of butter to the Soviet Union and certain middle eastern countries.

It is not clear whether the arrangements envisaged are specially favourable or are at the usual price. My information is that the proposals relate to stocks of old butter. All the signs are that the Commission intends to respect the minimum price set by GATT. In September, and after consultation with member states, the Commission will make proposals to improve schemes for social butter and Christmas butter. The Management Committee will discuss the matter later today. We therefore do not have all the information. We have consistently opposed arrangements that confer a positive benefit and, as yet, there is no sign that the arrangements that are to be discussed later today provide a special benefit.

In the Community's present budgetary circumstances, there is no money to pay for extra exports, so—subject to examining the precise details—I expect us to oppose such suggestions in any event. We would also oppose them, as I have already said, if, on detailed examination, it proved that the envisaged export prices were to be below market rates.

Photo of Robin Cook Robin Cook , Livingston

If we sell the butter, albeit at a cut price, to the Soviet Union, that ought to produce in the current financial year a new source of revenue. Therefore, why is it that, in order to make the sale, the Commission apparently requires a supplementary budget of a considerable amount to pay the subsidies? What peculiar convention results in a sale at a net cost to the Community?

Photo of Mrs Peggy Fenner Mrs Peggy Fenner , Medway

That is the result of paying export restitution. It costs us more to continue to store the butter than it does to pay export restitution. We shall consistently oppose any especial subsidy above and beyond the normal.

Photo of Robin Cook Robin Cook , Livingston

I am genuinely puzzled. If it costs more to store the butter than to pay the export restitution, why does the Commission require a supplementary budget to go ahead with sales which presumably will reduce the storage costs?

Photo of Mrs Peggy Fenner Mrs Peggy Fenner , Medway

Presumably because the old butter has been stored over a long period—at least six months. In order to give an accurate answer to the hon. Gentleman's important point, I shall write to him.

My hon. Friend the Member for Southend, East knows that in our present budgetary circumstances we shall be opposing the expenditure of the extra money. We shall certainly oppose, as we have consistently, any especial subsidy.

The Government's position is therefore both logical and prudent. The most important need for the longer term is to contain the cost of the CAP, in particular by reducing and eliminating surpluses. Where surpluses exist, in general we support the most cost-effective method of disposal. Often that is by export and necessitates the payment of export refunds. For some such exports, the Soviet bloc is one of the markets available. To refuse to export to that market would not harm the Soviets. It would in reality harm our own taxpayers by increasing the cost of the CAP. The Government remain opposed to any special arrangements which involve exports to the Soviet bloc on specially favourable terms. That policy is correct.

Hon. Members will be aware that, on the proposals made yesterday, the Commission has the power to determine the size of export refunds and the countries of destination to which they relate, subject only to first seeking the opinion of the Management Committee for the commodity concerned, on which member states are represented. That Management Committee meets later today.

My hon. Friend referred to a special sale and asked me for clear reassurances about the operating of the export plan. He made a special reference to an export which went to Cuba. This is a rather technical matter, but the facts are fairly simple. In February 1983, export refunds of about £4 million were paid by the intervention board to two British firms on consignments of butter destined for Cuba. The board took equivalent securities from the exporters, to be released on the arrival of the butter in Cuba. Suspicions arose that the butter might have been diverted to Russia, and the Commission launched an investigation. The board accordingly held on to the guarantees. In March 1984, the exporters threatened legal action for the release of the securities. The board's legal advice was that on the evidence of the investigation so far such action would succeed. The board therefore saw no alternative but to release the securities.

I assure my hon. Friend that that action has not prejudiced the investigation, which is still going on. If the investigation produces the necessary evidence, action can be taken to recover the export refunds, but the board was not entitled to go on withholding the guarantees provided by the exporters solely on the suspicion that the butter was not delivered to Cuba.

The board and the Customs and Excise have cooperated to the full in the Commission's investigations, but these were on a Community basis covering similar exports from other member states and it has so far been difficult to bring them to a successful conclusion. The Commission has made no approach to the board about the release of the securities. According to press reports, the Commission has said that the cost will fall on member states if they have not acted on sound legal grounds. Our action has been legally sound, so we believe that the risk to the British taxpayer is covered.

I hope that I have dealt with the points made by my hon. Friend the Member for Southend, East and by the hon. Member for Livingston (Mr. Cook). I congratulate my hon. Friend on raising a matter in which he has always shown the greatest interest. I know that he has also always been most concerned about our membership of the Community and anxious to ensure that the CAP helps to eliminate surpluses and is run as economically and efficiently as possible.