I hope that the House will agree that, albeit short, this debate is a timely opportunity to allow the House to make some representations and to seek clarification from the Government on a subject which is causing concern on both sides of the House. I hope that, if they catch your eye, Mr. Deputy Speaker, the hon. Members for Tayside, North (Mr. Walker) and for East Lothian (Mr. Home Robertson), a well-known constituent of mine, will add their voices and make my submission an all-party one.
There is great concern because cereal producers in non-less-favoured areas of Scotland face potential swingeing penalties this year and possibly even greater losses in subsequent years. Those losses are harder to contemplate because they were completely unexpected and came after a very difficult harvest.
I hope that the Under-Secretary of State for Scotland will agree that there has been much comment in the recent past about the issue, some of which has generated more heat than light, and some of which has been unfortunate from our point of view. Unfortunately, such comments have come from both sides of the argument. I should like to try to draw a line under that rather emotional approach, put it firmly behind us and look forward rationally to what can be done to deal with the difficulty. None of us wants to be in the present situation. We must try to find a way out of it.
As the House will know, area aid payments were put in place to compensate for the drop in farm income expected as a result of the 30 per cent. drop in price support. The general set-aside scheme offers assistance to cereal producers who are willing to leave untouched 15 per cent. of their productive land in order to be eligible for area aid payments in compensation.
It was always accepted by policy makers that the overall costs of that package would increase in the short term in order that supply and demand could be better balanced in the longer term. Indeed, the Minister himself was reported this year expressing satisfaction that the support funding paid by his Department would be increased this year.
The deal that was struck in Brussels—the MacSharry proposals for the three-year period until 1996—was welcomed by the industry because it was regarded as a reasonable package of measures that would provide some stability for the foreseeable future. It was hardly surprising then that such great concern was expressed when the full implications and extent of the 5·4 per cent. penalty for the majority of Scotland's arable land became known.
Of course, that concern is not restricted to the farming industry. A detrimental effect will be felt by all sectors of the cereals sector, whether it be growers, merchants or processors. There will also be further knock-on effects in downstream industries such as road haulage. There have been estimates of up to £20 million as the full cost of the present penalties to the industry if the measures are implemented in full. Of course, that pays no regard to the longer-term effect of loss of markets to places and producers outside Scotland.
The irony is that Scotland has been very successful in taking cereal areas out of production—successful compared with other European countries. The figures show that clearly. The crux of the problem is the way in which the base area was originally calculated. Census figures for the years 1989, 1990 and 1991 have been invested with a significance that they were never designed to bear. To suggest that farmers have overshot by 5·4 per cent. assumes that 20 per cent. of Scottish farmers have an average 27 per cent. additional arable land.
Various permutations of the figures can be arrived at, but it stretches credibility to suggest that this is what has happened. I must therefore tell the House that the industry has no confidence in the calculation of the base reference area. Census forms may well be statistical tools that can identify and confirm trends, but they have suddenly been used for a crucial financial calculation, and that calculation is seen by the industry as deeply prejudicial to Scotland.
No one should doubt that this penalty discriminates against Scottish cereal producers in the Community. We must find some mechanism to mitigate the financial consequences of these penalties. If we do not, we may risk driving producers out of the system altogether. The Minister knows that it is voluntary. They will then resort to large-acreage, high-yield, high-input crops, thus destroying the whole objective that set-aside was put in place to achieve.
We must therefore get Ministers to accept that there is a problem and to agree to use their best endeavours, within the rules, to find ways of mitigating the proposals and penalties, especially next year.
I understand that the president and officers of the National Farmers Union for Scotland, who lobbied this place effectively earlier today, met the Secretary of State for Scotland this afternoon. Interpreting the statement issued by the Secretary of State after the meeting, it looks as though the industry will get nothing more than tea and sympathy.
My hon. Friend is presenting his case with considerable restraint and responsibility, but is he aware of the depth of frustration and anger felt by the farming community in his constituency and mine because of the apparent intransigence on the part of the Scottish Office? Does he agree that, unless this matter is properly resolved, there may be such a crisis of confidence that any reasonable relationship between the industry and the Scottish Office may break down for ever?
I do indeed. That point has also been made to me by my right hon. Friends the Members for Tweeddale, Ettrick and Lauderdale (Sir D. Steel) and for Berwick-upon-Tweed (Mr. Beith): a real head of steam is building up, and if the Government do not recognise that, they will get their just desserts in the form of retribution later on.
Early press reports suggest that the Secretary of State believes that the industry is already receiving large sums of taxpayers' money. That is to ignore the tiny profit margins and negligible returns on capital earned by most farm businesses in the arable sector. It also ignores the fact that the rural economy depends on a viable farming industry for survival. It further ignores the fact that there are ramifications for processors, who will in future be forced to buy grain and proteins from other countries.
In any case, it is not so much a question of money; it is more a question of simple justice. There is a great deal at stake. There is a growing perception that Scottish Ministers are simply not willing to fight for Scottish farmers. As the Minister will know, a precedent has already been set in Germany, where an admittedly smaller overshoot has already been accommodated without penalty, and most other EC countries have not even submitted preliminary returns and may be quietly cooking the books to their own advantage.
Neither the industry nor I suggest that anything underhand should be done but I want to put two questions squarely to the Minister and I hope that he will have the chance to answer them this evening. First, will he review the validity of the census data from which the base area was calculated? Secondly, will he agree to make urgent approaches to the Commission to explore ways of getting around the effects of this penalty?
In conclusion, I firmly believe that, with significant political will, a way around the problem can be found. I hope that the Minister will give the House an assurance and a clear undertaking that he will use his best endeavours to sort out the mess quickly.
I thank the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) for giving me the opportunity to speak in this short debate. I am sure that my hon. Friend the Minister is well aware that there is a large cereal-growing sector in Tayside. People in that sector are deeply concerned, because they do not understand how the figures were calculated. As they received information that told them effectively to ignore the set-aside data previously supplied, it would seem that there is a strong case for re-examining the figures and making suggestions that will restore the confidence not simply of the National Farmers Union but of all the farmers in the good relationship that they have enjoyed with the Government in the past.
I am grateful to the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) for allowing me a few minutes of his time. I join him and the hon. Member for Tayside, North (Mr. Walker) in appealing to the Minister to intervene even at this late stage to avoid a serious injustice in rural Scotland. I must declare a personal interest in this problem.
My main concern is for the 374 lowland farmers in my constituency and the tens of thousands of other people whose jobs depend on cereals—maltsters, millers, road hauliers and many other people throughout Scotland. It is important to emphasise that many of them depend on spring crops which are now in jeopardy as a result of the present crisis. All those people are vital to the Scottish rural economy.
They face an immediate and serious crisis because of the failure of the Scottish Office to declare accurate baseline cereal production statistics to the European Commission. That statistical discrepancy is 23,000 hectares, which is equivalent to one third of the whole area of East Lothian. The discrepancy is the only reason for the 5·4 per cent. penalty that rural Scotland now faces. Scottish farmers have not broken any rules, but they, alone in the whole of the European Community, now face discriminatory penalties. It is bad enough that the mistake was made in the first place. But frankly, it beggars belief that Scottish Office Ministers do not appear to be lifting a finger to put things right. They can, and they must do so. If the problem had been in Norfolk rather than in northern Scotland, it would have been dealt with long ago.
The 5£4 per cent. cut will hit rural Scotland hard in 1993–94. But my worst concern is that there will be bigger discriminatory penalties in subsequent years unless the baseline is corrected urgently. So the Scottish Office must acknowledge that the original figure declared to the European Commission was badly flawed, and the baseline area must be corrected immediately to avoid permanent damage to the Scottish rural economy. It is up to the Minister. I hope that he will say something positive tonight.
I welcome this debate. I congratulate the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) on initiating it. It gives me an opportunity to answer various points that have been made in the press over the past few weeks and, of course, among farmers themselves. As hon. Members said, it is important for farmers to know the true position. It is detailed and complicated, but I will try to explain it.
First, I want to put the matter in perspective. We need to be clear where the overshoot fits into the whole arable area payments scheme and exactly what sums of money are involved. I appreciate that in the east of Scotland, especially in the Roxburgh and Berwickshire constituency, farmers had a rotten harvest. I understand that they feel upset about this matter, but they must appreciate that we are tightly constrained by the regulations of the common agricultural policy.
To give an indication of the sums of money that we are talking about, it is probably easiest to give an illustration. A typical arable farm of 600 acres is a reasonable illustration for many constituents of the hon. Members for Roxburgh and Berwickshire and for East Lothian (Mr. Home Robertson), and my hon. Friend the Member for Tayside, North (Mr. Walker). Let us say that, of the 600 acres in the non-less-favoured area, cereals account for 425 acres and oilseed rape for 85 acres. That means setting aside 90 acres. If there were no penalty and the overshoot had not taken place—
The hon. Gentleman should wait and listen.
—the cereal income under the new payment scheme would have been £22,700, the oilseed income £17,100 and the set-aside £8,700. The farmer would have received £48,500 on a 600-acre arable farm.
With the overshoot penalty—I will explain why it is there—the payment, subject to final approval from the Commission, would total £46,000, so there would be a loss under the present scheme of £2,500.
Everyone must please remember that this is a new grant. We are talking about £46,000 that was not available last year, but is this year because of the change in the common agricultural policy. It is a very large sum indeed.
That is what I am about to do, if the hon. Gentleman would contain himself.
If there is no overshoot next year, the increase on the same farm for the same crops would be up to £56,800. If there is an overshoot, the farmer would receive £53,900. These large sums are coming under the arable aid payments scheme. I welcome that, and hon. Members must realise that the sums are so large that we must be extremely accurate about what we are talking. If farmers are receiving that sort of extra income, they must not go round saying that this is disastrous for the rural economy. It will not be so.
The hon. Member for East Lothian made a valid point. To meet the overshoot next year there must be a 5·4 per cent. penalty that is uncompensated. That is why I have included that figure in the £53,900 that the farmer with 600 acres will receive. The calculation is simple. If the hon. Gentleman has a friend with 200 acres or 1,000 acres, the total is plus or minus on the £53,900. That is a big and important sum for farming. A good number of farmers in the east of Scotland will receive over £100,000, including some in the hon. Gentleman's constituency. Hon. Members should not be so critical of the sums that farmers will receive under this scheme.
Under the penalty scheme that I have explained, income next year will be 17 per cent. up on this year.
It is no good the hon. Gentleman shaking his head. The figures have been carefully checked and are correct.
The reductions in payment, in effect because of the overshoot, are due to one fact only, and that is the extra cropping this spring. That is the significance of the 23,000 hectares. This is brought out not only in the integrated administrative control system form but in this year's summer agricultural returns. There has been a substantial increase in cropping this year. That is why the baseline has been exceeded and overshot by the 5·4 per cent.
Will the hon. Gentleman stop saying that the figures are cooked? They are absolutely accurate.
The increase in arable area payments will be combined with other increased payments to Scottish farmers so that the total direct agricultural support available in 1993–94 will be some £300 million, an increase of almost 60 per cent. on this year's support of £188 million.
It is therefore true to say that there has been a substantial increase. Farmers have been on far too low an income for far too long, and I welcome the substantial increase this year. That should be acknowledged. With interest rates now down to 5·5 per cent. and inflation down, farmers should feel more confident about the future.
I shall now go into the figures in more detail so that hon. Members can understand how they have been compiled and why they are accurate. I can give a categorical assurance that the figures used by my Department in relation to the overshoot are accurate. My officials take considerable care and expend considerable efforts in their statistical work. I regret that others, sometimes in the press, misrepresent and misunderstand the figures.
CAP reforms were introduced in May 1992, following vigorous opposition by the Government to the MacSharry proposals, which Opposition Members accepted. The reforms were a victory for my Department, which was much criticised over that event.
During the summer of 1992, we discussed with the NFU and others how best to introduce the arable area payment scheme to the benefit of Scottish farmers. With the NFU's agreement and encouragement we secured an LFA/non-LFA split so that the grain-growing areas—non-LFA, represented by Opposition Members—would receive more grant, to reflect their higher yields, than grain growers in the LFAs.
The compensation is substantially in excess of that required to overcome any fall in prices. The scheme was introduced to compensate for falling grain prices. I appreciate that there has been a bad harvest, but, on the whole, grain prices have remained remarkably steady, and far above expectations when the policy was introduced.
The Commission required member states to submit their average cereal acreage for 1989, 1990 and 1991 by September 1992. The only means of knowing what the acreage had been was our agricultural returns. So we averaged them out, and that was what the Commission accepted and put into the regulation. That made a total base area of 551,192 hectares, which was split giving LFAs 160,348 hectares and the rest—390,944 hectares—to non-LFAs.
A difficulty arose in the spring, because farmers have increased their cropping by 23,000 hectares over the base figure. That sounds an enormous sum, but by adding it on as five hectares here, 10 hectares there, over a large number of farms, it has brought the increase. The substantial increase in the cultivation of grassland and a switch to oilseed rape has made the difference between the base area and the accurate figure of what was actually sown this summer, which was proved by the IACS forms and backed up by the agricultural returns in the summer of 1993.
How can the Minister possibly say that there has been such a massive discrepancy as 23,000 hectares? That is a third of East Lothian. Is he saying that Scottish farmers failed to set aside their 15 per cent. as required? If so, he is right that they should be penalised. But as the accurate IACS figures plainly show what the real figures are, that is what we should be working on. It cannot be justified that Scottish farmers, alone in Europe, must face those penalties in uncompensated set-aside next year. Surely he must do something about it.
I think that the hon. Gentleman will find that a number of other countries are in trouble with the Commission about overshooting the figures given. If we overshoot again in the coming cropping season, we shall be in worse trouble. It is important that farmers understand that they must either come out of the scheme and do what they like or stay in it and be responsible, not overshoot as much as they did last year.
The difficulty has arisen this spring because of the increase in 23,000 hectares over the base figure. That has been backed up by the agricultural returns of this mid-summer. That is a statement of fact. The only way that we could conceivably have obtained the figures in the autumn of 1992 was from the agricultural returns averaged over the previous three years. We have every reason to think that those figures were accurate, and that it was right to propose them as the baseline for this country. If we do not accept that, the position will get worse.
The object of the CAP is that, in return for restricting grain acreage, large sums of compensation are offered. The object is to reduce the amount of grain grown. The compensation was designed both to counter that reduction, and to offset the fact that the price over three years was to drop by 30 per cent.
The Minister is talking about difficult technical matters. If I am following his argument, the Minister seems to be saying that he has some evidence that farmers have not been taking 15 per cent. set-aside out of production. Has he evidence of that? If he has no evidence, the farmers have not been breaking any rules.
I am not saying that our farmers have not been setting aside land—they have been, and they have been compensated for doing so. But a great deal more grain has been put into the ground than was anticipated by the baseline of August 1992. England is different in that respect, because a number of farmers in England have decided that they can go by market forces and grow much more grain, particularly for malting, over and above the market price that they receive for feed barley, perhaps being grown ineffectively in Scotland.
The system is entirely voluntary. If farmers do not wish to use it, they are entitled to grow as much as they wish. Farmers can even do both—they can apply for the compensation under set aside, and still grow more grain, uncompensated, if they wish to make up the tonnages that they feel are necessary, for sale or for stock feed.
I am keen that we should resolve the problem. I have some sympathy for those with problems, but we must accept that the baseline is accurate. We have substantially increased our cropping. With the large sums of money that are coming to the farming community through the scheme, there will be no threat to the rural economy. The maltsters and the grain merchants will have adequate stocks of grain. There is every sign that the countryside and the farming industry will benefit substantially from the scheme and from the rest of the money, which has been put into the farming industry during the current year and is guaranteed for next year under the common agricultural policy.
My right hon. Friend the Secretary of State and I have made clear our willingness to look at any hard information that the industry puts forward. We will watch our position in Brussels carefully. There is no sign yet that the Commission is considering a general dispensation for the application of penalties.
The full position of all member states is not yet known. Six or seven member states are having difficulty convincing the Commission of the acceptability of their figures. I hope to have the Commission's final approval to pay the revised rates and to start making the payments next month. Even with the revised payment rates, considerable sums of money will go into both the LFA and the non-LFA sectors.
It has been a successful scheme, and all the farmers who participate in it are glad that they do so. I know that they are cross that some of them are losing perhaps 5 per cent. of the gain they obtain from the new grant that is available to them. But as the sums of money are so large, the farmers should be able to accept that the additional sowing of crops this spring has been the root cause of the trouble. We must be careful what we do next spring, so that we do not overshoot again, and then overshoot still further the next year.
As I have said, we are anxious to find a solution. But hon. Members should not be optimistic that the Commission has yet found a way forward to make——