Motion made, and Question proposed, That the sitting be now adjourned.—[Vernon Coaker.]

It is a great pleasure to have another opportunity to talk about agriculture in the south-west. This is the second such debate that I have introduced in Westminster Hall and it is a great disappointment that we do not often debate what is still a key industry. I am delighted to see the Lord Commissioner of Her Majesty's Treasury, Mr. Ainger, here to respond to the debate in his capacity as a Government Whip, but I am disappointed that his ministerial colleagues could not find a space in their no doubt busy engagement list to discuss an issue that, for many people in my part of the world, is hugely important. Although I accept that they have engagements elsewhere, many people will interpret their absence as symptomatic of the Government's indifference, and to some extent that of Parliament, to agricultural issues nowadays.

There was a time when we had a Ministry of Agriculture, Fisheries and Food, Agriculture questions and regular debates on the subject—sometimes too regular during the foot and mouth disease crisis and, previous to that, the BSE epidemic. It is incredible that agriculture has virtually been airbrushed out of the political agenda. When we have had the opportunity to tackle Ministers, the attitude that is so often evinced is one of apparent complacency in the face of what I regard as a crisis in the industry.

Let me stress first the importance of farming to the west country. It is often said that farming no longer employs that many people directly and that it is no longer a major economic factor in the region, or indeed any region in the country, so why should we bother about it? We must remember that 80 per cent. of the landscape in the south-west is under agricultural production. Without that production, we would not have the landscape that people visit and which swells the coffers of the tourism industry in the west country.

Let us remember the scale of agriculture in the south-west: our production is three times that of Wales and equal to that of Scotland. Agricultural issues seem to receive much closer attention in the National Assembly for Wales and the Scottish Parliament than in this Parliament, where one has to struggle to have one's voice heard. In answer to a question on the general public's biggest worry about the landscape of the south-west, which people were asked last year in a Campaign to Protect Rural England survey, 38 per cent. of respondents said the loss of working farms. This is a serious issue.

The hon. Gentleman is speaking cogently on a subject that he is very knowledgeable about. Will he bear it in mind that the loss of agricultural businesses also means a loss of valuable employment in the south-west, especially in remote rural areas, where it is often difficult to find alternative jobs?

The hon. Gentleman is absolutely right. In some ways, his constituency is not dissimilar to mine and it has high dependence on such jobs. The assumption that somehow everything will turn out all right and that new opportunities will appear through a magical process of diversification is wrong. The further demise of the agriculture industry will bring serious structural problems in the south-west.

Recently published figures show that income from farming has been reduced by 5.4 per cent., which Lord Whitty described as disappointing. Disappointing is not the word that I would use in that context. He then tried to put a gloss on that loss by saying that diversification is increasing. Let us be clear about diversification: we all support it and want new opportunities in the rural economy, but diversification per se is no substitute for productive agriculture. We still need the core business. We can diversify as much as we like, but if the core business falls through the floor, we will no longer have working farms.

Within diversification programmes, a lot of farmers in my area are actively examining alternative uses of their land for production in novel areas, yet the Government's response has been feeble at best in terms of, for example, encouraging crops for energy, introducing plant to treat grain for ethanol production or using miscanthus for combined heat and power schemes. Even in terms of productive diversification, we have a serious problem of attitude.

Ministers and others blithely recommend that farmers pursue a policy of diversification instead of continuing in their traditional manner. Does my hon. Friend agree that in the Government's south-west zone, which includes a large number of tourism areas, over the past generation, if not before, farmers have been at the forefront of diversification, particularly with farm holidays and many visitor facilities on farms? Ministers need to go out and see the initiative that farmers have been showing for decades.

My hon. Friend is right. I do not wish to point the finger at the hon. Member for West Carmarthen and South Pembrokeshire, because I know the sort of constituency he represents, but there is an urban mentality that does not see beyond the city limits in terms of what is happening and what could be encouraged. My fundamental point is that all the diversification in the world will not help if we lose the core business and do not have farms on which people can stay and enjoy their summer holidays. That is crucial to our understanding of the situation.

I intend to concentrate on dairy farming, because it is a key element of agriculture in my constituency. Other hon. Members whose constituencies are more given over to arable crops or to rearing sheep on upland areas may have differing views. My constituency is essentially a lowland constituency with some of the best dairy farms in the country. I have always argued—no one has yet satisfactorily argued against me—that there are more dairy cows in my constituency than anywhere else in this country, given that it is geographically large with a high concentration of dairy farms. Sadly, that number is reducing almost daily, which is why it was so important to secure this debate.

Before I move on to dairy farming, I shall make a few general points. There is a great deal of concern about the transitional arrangements for the revised common agricultural policy. I understand all the arguments and why the emerging programme looks like it does—to some extent it is a compromise proposal. What I cannot accept is the shambles in the Rural Payments Agency that will result in delays in payments for farmers. It is not good enough that sufficiently robust arrangements were not put in place early enough. That will have drastic effects on some farm businesses. If farmers cannot rely on their cash flow and have to renegotiate arrangements with their banks, that will be sufficient to cause huge financial difficulties.

I would like the hon. Member for West Carmarthen and South Pembrokeshire, if he can, to give a clear commitment that interim payments will be made when there are delays and there is a prospective difficulty for farmers. It has not yet been made clear whether that is the proposal, but I strongly recommend it to him.

The hon. Gentleman might have anticipated me raising the position of traditional cider orchards, which are a key element, although not a major factor, in my constituency. He will know that I have raised the issue consistently during the past year; I had an Adjournment debate on the subject. I have to say that I am extremely pleased at the progress that the Government appear to be making. The scientific report that sought a satisfactory definition of traditional orchards was well argued and came to the right conclusions. I cannot honestly see the difference between traditional and commercial orchards in the context of the environmental payments scheme, because all orchards make an extremely benign use of land, which should be encouraged.

I was particularly worried about losing a key part of the Somerset landscape—our traditional cider orchards. As I have said, the Department has done good work on the matter and said that it was going to Brussels to try to secure acceptance, but I have never had a definitive answer on whether that acceptance has been forthcoming from the Commission, and therefore on whether the saga of orchard definitions for the purpose of bringing orchards within the single farm payments scheme has come to an end. Will the hon. Gentleman put my mind at rest? If he can do so, I shall be delighted, as I will have won a small but significant battle on behalf of my constituents.

I move on to the issue of regulatory burden, which is key for many farmers. They are looking ahead at what inspection will result from the ghastly, enormously complex regime of cross-compliance. A simple argument has been put forward: farmers ought to know what the inspectors will inspect. In other words, the guidelines, when published, should be clear and understandable to everyone involved. I would go further and say that a single inspection regime and co-operation between the various regulatory bodies, whenever possible, would be extraordinarily helpful, as the man from the Ministry would not be tramping over farms regularly and unexpectedly, but the inspection regimes would have coherence of some sort.

The issue of agricultural waste regulations is looming. I do not think that we yet have any concept of the likely consequence of what is proposed for many farmers. I accept that the regulations come from Europe and that the Government are consulting on how they will be implemented, but I say to the hon. Member for West Carmarthen and South Pembrokeshire that if the impact is anything like we fear, it will put a colossal cost on to farm businesses—even more so if farmers are to be responsible for the cost of disposing of material that is fly-tipped on farms.

Fly-tipping is a big issue in many rural areas and it is estimated that anything up to 600,000 tonnes of extraneous material is tipped on farms. If farmers are to be responsible for getting rid of that through high-cost methods, it will be a very significant burden on them.

Over the years, I have continually raised the one-sided nature of regulation. The inspectors, the Ministry and the payments agency decide what is right and wrong; the farmer pays the penalty and is in the process often made to feel like a criminal for what is essentially administrative error. Yet there is no arbitration on whether a mistake has been made in good faith or whether the regulators, rather than the farmer, are wrong. I have long argued that there should be an agricultural ombudsman. We still need such a process—perhaps more so under the new arrangements.

My last point, which relates to dairying but has more general implications, is the problem of animal disease. Effectively combating animal disease could be a significant cost to the Exchequer, but also a significant issue in animal welfare. The compensation proposals are fine in some ways. There ought to be recognition of the differential value of different animals. For example, a cow is not a cow by definition, as there are many different breeds and different values according to circumstance. If we want the compensation scheme, and if we want the disease control measures to be effective, we must recognise the intrinsic value of the beast in question.

It is impossible not to mention bovine tuberculosis in a debate of this kind, but, to be frank, I do not know where we go from here. I have long argued that we need the scientific background, which the Krebs trials were supposed to produce, but we do not have it. However, we have the Irish study, a mushrooming problem of bovine tuberculosis and prima facie evidence of links with the badger population.

I do not want the eradication of the badger species—nobody does, or I hope nobody does. Equally, I want robust disease precautions to be applied to protect our domestic animal population. Laissez-faire, which is the attitude of the Department, is not sustainable even in the short term, let alone the longer term.

We all want an effective vaccination programme, which will prevent the spread of the disease from the badger population, but that seems to be like nuclear fusion power—something that is always 10, 15 or 20 years ahead and which we never quite reach. That is unfortunate. I can only urge that we redouble our efforts to find something effective. I do not believe that the answer is beyond the wit of the scientific community, if provided with sufficient resources and encouragement.

Let me move on to the key issue, which is that of dairying. We know from the Milk Development Council report and every other bit of evidence that we are losing a massive number of dairy farms across the country. Indications are that the number is 40 every week, and we have lost a third of them since 2000. We know that dairy farming, which has always been extremely hard work in respect of keeping holdings going, is now hard work for very little reward. The estimate is that the average dairy farmer receives less than £3 an hour for a 70-hour week, which would be illegal were that person to be an employee.

In the south-west, an estimated 1,000 dairy farms have disappeared over three years. The estimate is that we will lose a further 30 per cent. of those remaining over the next two years. That is a colossal reduction in the number of dairy holdings.

The noises from the Government and those associated with the Government appear to be based on platitudes. At Environment questions recently, the Minister for Rural Affairs and Local Environmental Quality was very keen to say that milk production is level and that there has not been a marked reduction. That is true—the market is seeing to that for the time being. He was keen to point out that there are big differences in profitability between different dairy farm businesses. That is true, and has always been true. Some have been able to invest since the BSE and foot and mouth crises and some have not. Those who have not find themselves less profitable than those who have.

Others have pointed out that land prices in the south-west are level or rising and that that indicates that we have a prosperous farming industry. I think the reverse is true, because the people who are buying the land are not the farmers but, in most cases, big business or those who want a bit of landscape for their ponies and are using City money to buy it.

The concept that small farms are of necessity less efficient is transparently not the case. Many small dairy farms are just as efficient as big farms. The issue is not whether they are more efficient, as Lord Haskins would have us believe. He seems strongly to recommend large holdings, which perhaps fit into his style of business better than the traditional family farm. The issue is that small farms cannot afford to suffer losses in the same way.

Some people are dealing with small farms that are making a loss and that require them to go out at all times and in all weathers to make an inadequate wage for themselves and their family. They are sitting on an asset that has huge capital value and eventually they succumb, whatever their personal feelings, to the view that this is not sustainable for them and their family. The result is that we are losing small and medium-sized farms and family farm businesses. Amalgamations are happening, and big agribusiness is taking up the slack and taking up the dairy farms.

That might be okay—I would argue that it is not—but there is an argument that it makes for a profitable and sustainable dairy sector, except for one thing. If farm-gate prices are inadequate to provide a return on the investment, there is no commitment from the big businesses to the sector as there is from the family farmer who has kept dairy cattle on the holding for many years. There is no commitment to stay with the undertaking—agribusiness will follow the bottom line.

Unless we do something about the profitability of the dairy sector, we will be in an intensely vulnerable situation where milk production will not stay level, but will fall through the floor because business will take its investment elsewhere. We are in dire danger of losing our dairy farming industry.

This is very serious issue. On the farm-gate price for milk, we know that farmers get a 40 per cent. share and that they got 60 per cent. 10 years ago. That is an unreasonable drop in profit share and it has been made up by an increase in the share of the big supermarkets. We know that is the case and that it has an effect on primary producers and on the processors.

There is a contraction of the domestic dairy processing industry. The processors are not the wicked elements in the chain and they are contracting in exactly the same way. The Diary Crest Yoplait plant in Yeovil recently closed down, which is a straw in the wind for what could be a major collapse on the dairy processing side.

If we are not careful, the remaining 4,000 or so dairy farms in this country will disappear. Effectively, we will be exporting our industry to our European competitors. I cannot for the life of me see the sense in that or why it is sensible not to produce milk on the finest dairy lands in Europe—in the west country—and to import it.

The key is the transparency of the supply chain in the dairy industry, the position of the supermarkets and the inadequacy of the supermarket code of conduct to do anything to moderate the attitude or performance of the big supermarkets. The market is distorted: between them, the large retailers form a classic oligopoly and they do not act in the interests of the whole supply chain. They may act in the temporary interests of the consumer, but I argue that, in the long term, it is very much to the detriment of the consumer to lose British milk, cheese and other dairy products.

Unless we have a system that strengthens the supermarket code of conduct and allows binding intervention, there will be no genuine market in milk. That is not to argue against free enterprise and the operation of the market; it is to argue for the operation of a fair market, rather than one that is distorted by the supermarket oligopoly.

It is extraordinary that the Competition Commission and the Office of Fair Trading, supported by the Government, argue against the vertical integration that was so crucial in this country. Wherever else we look in the world where there is a thriving dairy industry working within the constraints of a free market, we see effective vertical integration without the constraint that I have described. It is perverse that Tesco has a bigger hold on the market than Milk Marque ever did. I cannot understand how that was allowed to come about.

My plea to the hon. Member for West Carmarthen and South Pembrokeshire is familiar, as, like others, I have pursued the issue doggedly over the past few years: until we get the farm-gate price of milk up to a sustainable level, there will be no fair market for milk. Without a fair market, there will be no effective future for dairy farming. If there is no future for dairy farming, we shall lose the industry and it will move towards extinction.

I take no pleasure in saying that and I do not believe that I am being unnecessarily pessimistic or, as the Minister for Rural Affairs and Local Environmental Quality accused me of being a week or so ago, hyperbolic. I simply believe that we must do something now to save an industry that is a crucial part of the economy of my part of the world and of the whole United Kingdom.

I want the hon. Member for West Carmarthen and South Pembrokeshire to advise Ministers, as they are so busy in Exeter or elsewhere, that we need effective intervention now. The Department for Environment, Food and Rural Affairs must stand up to colleagues in the Department of Trade and Industry and make them see what damage is being done to the industry. We need an effective supermarket code of conduct that is not just a pious intention, but a reality that is enforced to provide a transparent and fair supply chain for milk. Only by providing that will we give farmers the security they need to plan their businesses and to ensure both the safety of their undertakings and a future for them and their families. To me, that is still important. It is also important in the context of the west country and Somerset, and I urge Ministers to take action.

Thank you, Mr. Deputy Speaker, for allowing me to catch your eye. I start by declaring my entry in the Register of Members' Interests as a farmer and chartered surveyor. I congratulate Mr. Heath on securing the debate. Agriculture is an extremely important sector in the south-west economy, and he is right to say that we want it to flourish as far as possible. Many of our constituents and those of other hon. Members in the Chamber depend, directly or indirectly, on a profitable agricultural sector. I welcome the Lord Commissioner of Her Majesty's Treasury, Mr. Ainger, who will respond to the debate on behalf of the Government. I am sure that it cannot be long before he is elevated to a speaking, rather than a silent, job. I am delighted to see him here this morning.

The speech of the hon. Member for Somerton and Frome ranged widely, and rightly so. In the short time available to me, I want to deal with a few issues affecting agriculture. As he says, the latest Government statistics show that agricultural profitability has dropped by 5.4 per cent. It is almost as though that came as a surprise to the Government; I could have told them almost for a certainty that there would be a drop in profitability.

There is an awful lot of gloom and doom about in the industry at the moment, as everyone knows. I was talking to a constituent of my hon. Friend Mr. Paice yesterday—a major agricultural adviser whom my hon. Friend will know well. In his 30 years of advising farmers, he has never known there to be such dismal prospects for the future. He told me of one very large East Anglian business that had made a profit for the past 20 years. Last year, for the first time, it made a loss. That is the trend in agriculture. Some of the responsibility for that malaise has to be laid at the Government's door. I do not want to make this into a political debate, but there are certain things that the Government can do.

First, the Government could try to help those sectors with great balance-of-payments deficits. The hon. Member for Somerton and Frome has gone into the dairy industry in great depth, and we basically know the causes of the problem in that industry. It seems strange that although the Government talk about wanting to establish strong co-operatives to market agricultural products properly, one of their first acts was to dismantle vertical integration in Milk Marque.

One of the problems in the dairy industry is that we export the cheap dairy products—liquid milk and milk powder—and import the expensive value-added products, such as cheese and yoghurt. That is crazy; we ought to be doing exactly the opposite. We are not only contributing to the balance-of-payments deficit, which is almost at a record in this country, but are, as the hon. Gentleman said, exporting jobs to our continental neighbours. That seems utterly crazy. We could well do with the jobs here. We in the south-west, along with those in the north-west, have some of the best temperate climates and soils for producing dairy products in the whole world. It seems absolutely crazy to set that land aside and do nothing with it when it could be producing perfectly profitable dairy products.

The hon. Gentleman did not like me mentioning Waitrose the last time I did so, but it has some very good contracts with dairy farmers, and I praise it for that. It has direct contracts with farmers and can offer them a slightly higher price. It knows precisely where its milk is sourced, so if there is any problem, it can rapidly identify the farmer and rectify the problem quickly. However, if the milk comes from goodness knows where, it is much more difficult to isolate the problem.

I would like to talk about one or two specific problems that my farmers have raised with me. One of the most important is tuberculosis. I see that Mr. Drew is present and I do not know whether he will catch your eye, Mr. Deputy Speaker, but he and I have a major problem with TB. I took a delegation to see the former Minister of Agriculture, Fisheries and Food eight years ago when this Government were first elected—of course, that was before the foot and mouth disease crisis—and he said that TB was the single most important animal health issue that we had to face. I regret to say that, in those seven years, it seems that very little has been done—in fact, worse than very little.

I do not particularly blame the Government for this but, throughout the foot and mouth crisis, all staff dealing with tuberculosis were taken away, so the eye was completely taken off the ball in relation to TB. I have to tell the hon. Member for West Carmarthen and South Pembrokeshire—who is in loco parentis, as it were, the Minister today—that the problem is getting worse, whether we like it or not. The disease is getting into the deer and hare populations, and that is extremely serious. Whereas badgers have a normal roving pattern of about 5 to 10 miles, deer rove for up to 30 to 40 miles, so the risk of spreading the disease is far greater.

We need to put much more emphasis on trying to find a satisfactory vaccine and trying to improve diagnostics so that we can differentiate between a vaccinated animal and one that has caught TB in the wild. There would be great benefit to all of us if the Government would put more emphasis on, and resources into trying to solve, that problem; they would not only improve the profitability of those farmers in my area who face that problem, but would reduce the huge compensation bill that they have to pay as a result of the disease.

I have a problem with registration under the so-called Countryside and Rights of Way Act 2000. It is particularly unfair. I had a case in Wotton-under-Edge, where two sites were registered. The farmer appealed on those two sites, and suddenly found that a third site had been posted on the internet. It may also have been posted at the local council, but he did not know about it until after the date of appeal, so he could not appeal. That seems unfair. I have taken the matter up with the planning inspectorate and the Countryside Agency, but have had very unsatisfactory treatment. The Minister looks puzzled. After the debate, I will let him have the details and should be grateful if he were to look into that matter.

There is also concern about dogs in relation to the countryside and rights of way. Like the hon. Member for Somerton and Frome, I have a lot of stock in my constituency area—sheep, dairy cattle and beef cattle—and there is concern about dogs. There is also concern about gates being left open so that cattle stray on to roads and cause problems. Those issues should be carefully examined.

I also want to talk about the paperwork. We raised that matter at great length in the last debate on agriculture in the Chamber on 19 January 2005. I would like the Minister to inculcate a new way of doing business in his Department. It should impose the least amount of paperwork on farmers concurrent with preventing fraud. The whole ethos in the Department should be to produce the least amount of paper and to keep things as simple as possible.

I have enormous sympathy with my poor farmers at the moment, who, at a time when they are trying to sow their spring crops, are having to deal with hugely complicated paperwork related to the single payments. As was mentioned in the previous debate, it is almost impossible for ordinary farmers to administer the paperwork themselves; they may have to get outside advisers, which is expensive. Even if they can administer the paperwork themselves, the time taken in administration is a cost. We should inculcate a new ethos in the Department for Environment, Food and Rural Affairs: keep the paperwork simple and keep it to the minimum commensurate with dealing with fraud.

I also want to deal with the whole business of the ban on hunting with hounds from 19 February, and the issue of cattle disposal. In certain areas of the country, that will be a real problem. We want to encourage farmers to take part in the national cattle disposal scheme, and I am sure that the Government will do more in that respect. However, there will be problems in individual areas, and I should like to know what the Government intend to do about them. We do not want a system in which farmers feel so pressurised that they simply go out and bury the stock or, worse still, leave it lying about somewhere, because that would be a real haven for disease.

I am grateful to you, Mr. Deputy Speaker, for allowing me to speak in this debate. I am concerned that the pressure on certain sectors—the dairy sector and the arable sector in the Cotswolds—could mean that more people will put land down to grass that will be grazed extensively by sheep and beef cattle. I am then concerned that pressure will also occur in those sectors.

The Government need to take a long, hard look at agriculture. It is no good just saying, "Well, the farmers will have to look after themselves, and if they lose jobs, they lose jobs, and if they are not profitable, they are not profitable." Such an attitude is not acceptable. We want jobs to be maintained in rural areas, and we want agriculture to be profitable, because the glue that holds the rural area together depends on the profitability of agriculture. If agriculture is not profitable, the whole rural area suffers from a great depression and malaise.

We look to the hon. Member for West Carmarthen and South Pembrokeshire to give us some positive hope this morning and to tell us how he thinks things might improve. My goodness, the industry desperately needs positive good cheer from him today.

I, like my near neighbour Mr. Clifton-Brown, welcome the debate, and I congratulate Mr. Heath on securing it. I apologise for missing the first couple of minutes of the debate. Like the Lord Commissioner of Her Majesty's Treasury, my hon. Friend Mr. Ainger, I am on a Standing Committee considering a Bill, which causes some problems with double-booking.

I concur with what the hon. Members for Somerton and Frome and for Cotswold said. My starting point is that we have the figures for the total income from farming, and this year they are down. There was some optimism last year because the figures rose, which was promising, although they did not rise dramatically. The fact that they are down this year is affecting profitability. That brings starkly into play the amount of money that the state puts into agriculture every year, because without that £3 billion or more the industry would be in a worse than parlous state. However, I want to dwell not on that but on what the debate has been about. In the south-west, it is understandably about dairying, and it is also about diversification—the two d's.

I make no apology for starting with the problem of how farmers are paid. The Environment, Food and Rural Affairs Committee, of which I am proud to be a member, has in the past examined the Rural Payments Agency, and I think it is fair to say that we have, in our various guises, given it quite a hard time. Sadly, if a Soviet-style system for making payments to people is created, it is no wonder that it is bureaucratic and subject to all the problems that we know about which result in failure. As we enter this brave new world, I would like us to search for greater finesse and for a system that actually rewards, rather than relying on a highly bureaucratic system of payments.

I am grateful to the hon. Gentleman for giving way, and I am sorry to intervene on his speech, but I want to say something that I meant to mention in my speech. Does he agree that there will be a problem in moving from the old integrated administration and control scheme to the new single farm payment system? The IACS payments were mostly paid before Christmas, but the new payments will be made several months after Christmas. Does he also agree that if those payments are not made on time, there will be an opportunity cost, even if the farmer does not have an overdraft, which most farmers do? If the Government do not pay by the statutory date, they should add interest for late payments.

I hope that we would always pay as promptly and as fairly as possible, but I am just making the point that this is an incredibly complicated system, and we have made it more so.

Let us understand why. During the build-up to the changes, I was lobbied by three groups of farmers. I was initially lobbied by those who wanted to break away entirely from the production-based system, because they had farmed without subsidy throughout their history and they felt that if we were moving towards environmental payments it was appropriate that they were able to access that system. I also met those farmers, largely in the arable sector, who welcomed the area-based payments, because they saw it as a more straightforward method of payment and hoped that it would earn them additional rewards. Of course, I also met dairy farmers in the south-west who fought hard to maintain the historic payment system. The fact that all three groups were members of the National Farmers Union meant that the organisation was wearing many hats, which made things difficult.

Mr. Paice picked up on my description of the system as a spatchcock. That is an appropriate definition. This is not an ideal system. We do not want a system in which, inevitably, there are some real losers—essentially in dairying—until other ways in which farmers can build up income have been looked at, and it would be utterly unfair if we immediately went over to a system of area-based payments.

There is also, dare I say it, an interesting British experiment going on. There are different methods of payment in different areas of the colonial parts of Britain. That may give us an opportunity to measure the effectiveness of the different systems, but I hope that we will eventually agree that it is right to pay farmers for what we want them to do, rather than to pay them a production subsidy to build up excess supplies, which is utterly unacceptable nowadays.

That takes me directly to dairying, an unhappy area which the Select Committee looked into—in fact, I chaired the Sub-Committee. Of all the sectors it is the one losing out most, something that obviously started a long time ago, rather than starting or ending with the current Government. That trend is due to the system of linking to currency fluctuations through the intervention milk price equivalent, which is fine when the currency moves in the right direction, but results in heavy penalties when it moves in the wrong direction. Anything that can lessen that impact is vital, as we will see when the new system of payments comes in. Like Andrew George, who has been valiant in his attempts to achieve greater fairness in the sector, I support the idea of a statutory code. We, like him, want to see that fully evaluated—and, I dare say, we want more research on it—because if the threats that keep being made to the supermarkets are to have any meaning at all, we must be able to assess the benefits of having such a code.

In our last report, we found out that when the 3p was offered, as a result of farmers' protests, it did find its way into their pockets, yet there is still the missing 18p. In a sense it is not missing, because we know that it is shared between the supermarkets and the processors, although, as the hon. Member for Somerton and Frome said, the processors are under enormous pressure at the moment. As I have said many times before, the Severnside plant is at the bottom of my garden, and I know some of the pressures that it has to endure. The only answer, besides trying to get the system right, is to secure greater co-operation. Contrary to what my near neighbour the hon. Member for Cotswold said, Milk Marque was not destroyed by the Government; it was kicked to death over a long period. The level of confrontation surrounding Milk Marque—and the price levels that were fixed—meant that it was set up to fail. It should have been set up to encourage greater collaboration, and I should like to see that co-operation throughout the sector.

I would not mind if there was another OFT inquiry into the matter. It would highlight many of the problems, although such inquiries often do not find the solutions. The problem is that the OFT, if it reported, would, I suspect, consider calling for even greater rationalisation at the producer end. Like other Members, I do not want that.

Normally, I agree with most of what the hon. Gentleman says about agriculture, but I disagree with his remarks about Milk Marque. Will he answer a simple question? Is the dairy industry more or less profitable since the break-up of Milk Marque?

I know who is profitable—the supermarkets. They would argue that that is because they do their work well. Processor profits may go up and down, but the fact is that producers have done very badly, inevitably because of the way that confrontation rules the sector. Confrontation has served no one but those at the end of the process. It is about time the sector recognised the need for greater co-operation, not just through vertical integration, which may allow us to compete internationally, but more particularly among farmers. We must encourage them to co-operate.

The simple fact, which has been alluded to on numerous occasions, is that if the normal supply and demand mechanism operated we would expect the supply to decrease as the price fell. That does not happen because there is always someone coming in, trying to pick up surplus cows and milk them more efficiently. I dare say that the way that milk, certainly liquid milk, now moves around means that we do not face a shortage. The point is that we have to recognise that the normal market does not apply to milk, and we have to look at ways of bolstering the supply by supporting farmers in other ways.

The hon. Gentleman said that there was a crying need for co-operation both between primary producers and between producers and processors. Every year I go to the south-west dairy industry dinner at the Bath and West showground in my constituency and there is talk of little else but how to encourage co-operation. None of that will work unless the big supermarkets' stranglehold on the bottom line is broken. Co-operation on its own is not enough.

It may not be enough, but it is a good start. The Select Committee report highlights the lack of co-operation as the biggest weakness in the sector. There are no magic wands. It is down to people trying to get on with one another. It is not just about farmers co-operating; it is about processors learning to co-operate with each other and to give up their cut-throat policies. They must face up to the supermarkets and ensure that we, as parliamentarians, and the Government put pressure on them. That is no easy thing, but it has to happen. That is another reason for my supporting a statutory code.

Bovine TB is an enormous problem, and I agree with the hon. Member for Cotswold that there are no easy solutions. The Veterinary Record this week carries the results of an interesting survey. I do not know whether it was carried out because of the Irish results. Although those were apparently conclusive the Irish have announced that it is impossible to contemplate the level of culling that would be needed to deal with the problem of the wildlife reservoir. Contrary to what the hon. Gentleman says, the facts about other wildlife reservoirs have been known for a long time. Whether the problem is down to politics or lack of resources, it is only since we have begun to look more carefully at where bovine TB occurs that we know rather more. That obviously arouses fears and makes policies that much more difficult to develop.

In the survey farmers were asked what policies they would suggest to the Government. Surprisingly, their top three were a cattle vaccine, continuing the current testing and cull policy, and, in only third place, a proactive cull of badgers. Even more surprising was the fact that the idea of localised action was seen as completely unacceptable. If farmers themselves are asking for that, it is incumbent on the Government to respond and to invest resources in the search for a vaccine. It is not easy; we know that the current work on the BCG vaccine has been fraught with problems, but we have to find one. We should all be united in that search.

On diversification, I get a slightly different picture in my constituency, where there are many holdings through the County Farms Estate. I met some new tenants just before Christmas. The quality of people who still want to come into farming is gratifying. They know what they are coming into and realise that they will encounter problems. Again, the numbers for dairying are down. It is difficult to invest in an updated milk parlour. However, people are coming into the industry to farm and to do a range of things. Sadly, they are not always helped by the way others in the countryside try to prevent diversification. All hon. Members will know what I am talking about here. If we are serious about farmers earning income in other ways we have to encourage them to diversify.

Some time ago in Gloucestershire we set up a group called the Rural Issues Task Force. That was mainly on the back of foot and mouth money, although the organisation slightly pre-empted that. We were able to see at first hand the invaluable work of the farm business advisory service, which advises farmers on the best way forward, including, sometimes, passing on the hard message that they are in the wrong vocation. That is difficult, but it sometimes needs to be said. However, the service tries to help other farmers to move forward.

I congratulate the RITF on its work under Henry Robinson, its chairman, who is well known to the hon. Member for Cotswold, and Robin Grist, its secretary. We would like to keep it going. If another Government came in and made alterations to the Small Business Service, of which the farm business advisory service is part, that would threaten it. The most important point is that we are keen to consider methods of diversifying, including growing non-food crops and making more effective use of environmental payments. That can be done only by collaborative work, as well as work at the level of the individual farmer.

I shall leave it at that. I could say some things about the fallen stock scheme, which has been a little slow to get off the ground, but in recent times has shown good signs of making progress. There are many problems, and there is a great deal of work to do. I look forward to hearing my hon. Friend the Member for West Carmarthen and South Pembrokeshire talk about those matters. We have to pull together to ensure that the countryside functions properly.

Several hon. Members:

rose—

Order. Mr. Speaker has ruled that as long as all the local Members are in, the Front-Bench spokesman can have 10 minutes each to wind up, so we do not have to restrict the speeches.

Thank you, Mr. Deputy Speaker. May I begin, as have others, by congratulating my hon. Friend Mr. Heath, not only on securing the debate, but on highlighting the seriousness of the problems facing farmers, particularly dairy farmers—in fact, farmers across a number of other sectors as well—in the Government's south-west zone? A recent Milk Development Council report highlighted the fact that 1,000 dairy farmers had gone out of business in the region in the past three years and it is anticipated that a further 30 per cent. will go out of business in the next two. Those devastating figures demonstrate the seriousness of the circumstances that farming faces.

My hon. Friend highlighted the role of supermarkets and the impact on farm-gate prices as well as the challenge of the introduction of the single farm payment system, which is already creating tremendous challenges in the Rural Payments Agency and DEFRA. He also referred to the break-up of Milk Marque, as did Mr. Clifton-Brown, whose analysis was spot on. The Government were prepared to intervene to break up Milk Marque. If it required improvement in its internal practices, that could have been addressed rather than breaking up the organisation, particularly when it was no longer felt by the Competition Commission to be monopolistic.

May I make this observation to the hon. Gentleman, who is entirely on the right point? We have weakened and broken up Milk Marque, but co-operatives on the continent, particularly in Holland, are growing bigger and stronger, so we are competing on an unequal playing field.

I agree with the hon. Gentleman. All speakers so far have highlighted the importance of farmers in this country getting back to the negotiating table between themselves and establishing a basis for greater co-operation to balance the negotiating muscle within the food supply chain.

Another example of highly developed vertical integration is New Zealand, where processing is intimately linked to production. A much larger entity is selling to our market than would ever have been the case with Milk Marque.

I am grateful for my hon. Friend's intervention. There are many international examples that can, I hope, be taken off the peg and applied more effectively and speedily to help to provide agriculture in this country with greater strength in the marketplace.

All political parties seem to be struggling with the knotty issue of bovine TB, as hon. Members on both sides of the House have mentioned it in the debate. It has been a challenge for many years, and it was perhaps made worse following foot and mouth disease, largely as a result of restocking policies at the time and the need to ensure that pre and post-movement tests were put in place. Perhaps they should have been in place, because problems were created in parts of the country that previously had not had such difficulties.

The political parties will have to face up to some difficult political decisions in due course. The fourth report from the independent scientific group will be out in the next week or so—it should have been published by now—and we are anxious to see it because it will give us further information about the progress of the trials. The Irish study, which I hope the ISG report will comment on, shows that there could be a solution, or a partial solution, to the problem of rampaging bovine TB if any Government were prepared to consider a policy of widespread extermination of the badger. As far as I am aware, however, no party is proposing that. Reactive culling clearly does not work, and although that is disputed in some circles, it is one helpful outcome from the work done by Professor John Bourne and others. There is much still to be debated on the issue and many dairy farmers in the south-west, as well as elsewhere, will watch developments very closely.

Mr. Drew rightly referred to complications created by the introduction of the single farm payment system, the purpose of which was to create a more straightforward system that ironed out the complexities of the scheme in place until December last year. That leads me to the first of my two substantive points: the competence of DEFRA and farmers' lack of confidence in its ability to cope with the challenges ahead.

The Department failed to introduce an amendment to the Animal By-Products Order 1999 in time to be able to implement a fallen-stock collection scheme in May 2003. The order was introduced in July and there was a further debate on the subject in September 2003, when we were promised such a scheme in January 2004. After many questions and debates, it was eventually established a year later. What confidence does that give farmers that DEFRA, first, gives them priority and, secondly, has the competence to act?

Another product of last year's debates on the fallout from the foot and mouth inquiry was the emergence of the report by Jim Dring, which was devastating on the role of MAFF and DEFRA and their competence to cope with what was going on in Northumberland. It highlighted some serious questions that the Department has failed to answer.

The single farm payment scheme is the most significant change in agriculture in more than a generation. There was a decent amount of lead time before it was introduced in January, but information is still percolating out. Booklets were distributed late, farmers were informed late and there is a lot of confusion out there. From talking to farmers, I know that they are worried about the future because they are uncertain.

The Department has made it clear that it is not really competent to make payments in December this year, but the Rural Payments Agency is likely make payments towards the end of the payment window, which will end in June 2006. I hope that the Lord Commissioner of Her Majesty's Treasury, Mr. Ainger will address the need to ensure that farmers are properly compensated if the agency does not pay in the early part of the payment window, particularly farmers who are struggling on the margins.

The Department must be prepared to intervene in the market, just as it did with Milk Marque, to protect farmers from the overwhelming strength of supermarkets. If the competition authorities have acknowledged that convenience stores are a discrete market, surely supermarkets are a discrete market too. For example, Tesco holds about 40 per cent. of the market. Why are the Government not prepared to intervene?

Of course, it is an entirely rational decision of supermarkets to use their muscle in the market. No one complains about that, and one understands that if they do not do it, their competitors will and they will lose their place in the market. However, is what is happening through the food supply chain a proper use or an abuse of power through that chain? The Government need to address those questions.

The real Secretary of State for Agriculture, Lord Haskins, predicted only this week in the Farmers Guardian that the average size of dairy farms in the south-west will have to be 250 milking cows. Unless we are to go down that route, if that is Government policy, we shall end up with ranches across the countryside. That will not help either rural communities or the future of our farmed landscapes. It is time the Department got a grip.

rose—

I must sit down now.

Order. Unless the hon. Gentleman resumes his seat very quickly, he is not going to hear what the Government have to say.

I have just resumed my seat, Mr. Deputy Speaker.

I, too, congratulate Mr. Heath on securing the debate. I shall not repeat his comments on the absence of a Minister, but I sympathise with the position in which the Lord Commissioner of Her Majesty's Treasury, Mr. Ainger, finds himself. He has already been given some material, but clearly he will be circumscribed in what he can say in reply to the debate.

It is also important to make the point that despite the cataclysmic changes to agriculture in the last few years and the advent of the single farm payment system, we have not had a debate in Government time on agriculture either in this Chamber or in the main Chamber for at least two years. I have established that with a little research, although the period is probably a lot longer. That underlines the Government's attitude to farming and the countryside.

Underlying all the concerns and the situation in the south-west, as well as the dramatic reduction in the number of dairy farmers, is the question of what we want, and what the Government expect, from our farmers in the next couple of decades or so, now that the single farm payment system is in place. Are the Government relaxed about having a situation such as that to which Andrew George just referred—a massive number of dairy farmers going out of business and a few others getting bigger, including the impact that that will have on rural communities—or do they want an effort to maintain the rural community structures that have served our countryside for so long?

If one considers the bald statistics of dairying, there seems to be little doubt that milk production has hardly declined at all, and there is no doubt that many dairy producers around the country are expanding production. That is a logical business decision based on how they see and cost their own enterprises. However, that somehow obscures the point that the hon. Member for Somerton and Frome was making, which is that when there is a dramatic diminution in the number of small and smaller farms, there is a fundamental impact on the fabric of the community. They have been the mainstay of our rural communities—particularly relating to dairying in the south-west—for many generations and the country has not really asked itself whether it wants to allow this deterioration to continue.

A number of hon. Members have rightly raised the issue of the single farm payment. I, too, take the view that the delays announced by the Rural Payments Agency are a direct consequence of the complexity of the scheme that the Government have introduced, coupled with the inevitable bureaucracy and the difficulty that this Government have in introducing any computer-based system, as we have seen. However, they have not fully understood the delay's impact on farmers.

Farmers were already facing an unusually extended period between their last integrated administration and control scheme—or IACS—payment, most of which was made in November 2004, and the single farm payment, which could be made in December 2005, leading to a wait that might be slightly longer than 12 months. However, that payment is now be to made in February 2006, although we all think it will be made in April, May or even June 2006. We are looking at anything up to an 18-month gap, which has serious cash-flow implications.

As a side issue, the tax implications are also serious, because farmers could end up with one year in which they have no receipts from the Government and another with two lots. The Government have not yet made any pronouncement on that, either. I have already called on them to make an interim payment of perhaps 30 to 40 per cent. of their single farm payment and I maintain that view. At that level, the payment would be well inside any margin for error and it could help farmers through that period.

The issue of bovine TB is central to the south-west and a few other parts of the country. I do not take such a sanguine approach as the Government, or even as the hon. Member for St. Ives, because there are big question marks over the integrity of the trials that are taking place. The case against reactive culling has not been properly made. With culling rates of 30 or 40 per cent., which is all that was being achieved in a number of the areas, there is not much validity to any conclusion. Let us compare that situation with the Irish trials, in which virtually 100 per cent. elimination of badgers was achieved and the validity of the conclusions is right.

I agree with the hon. Gentleman that we cannot have a policy involving the long-term elimination of badgers from large sections of the British countryside. I want a healthy cattle population to live alongside healthy wildlife; it is in the interests of cattle producers and of everybody concerned with wildlife that that be so. The Government are almost paralysed in respect of doing anything about badgers, yet they refuse to accept the evidence that there is a reservoir of TB that needs to be eliminated. We need a way to take out badgers in infected areas—I mean not just cattle infection, but badger infection—and somehow ensure that those are repopulated only with uninfected badgers. That is similar to what used to be described as the clean ring strategy, and we need to move much more quickly towards it.

The holy grail is a live test for badgers, which could be caught, tested for TB and, if they did not have it, let go. We are not there yet, but that is more likely to become reality than the vaccines, which, as we have all been told, have always been 10 years away. We are still no closer.

I endorse what my hon. Friend Mr. Clifton-Brown rightly said about co-operation. It is odd that we are facing the merging of Arla and Camina, two of the biggest dairy co-operatives in Europe. Arla, the Danish co-op, has 80 per cent. of Danish milk supplies and a huge chunk of English milk supplies too, being the sole supplier of liquid milk to Asda supermarkets. In England, Arla operates as a commercial company. We cannot generate a co-operative operation on anything like that scale. Arla on its own—certainly Arla combined with Camina—will be a dominant force throughout Europe. That is an important issue.

I want to touch on the hill farm allowance scheme, which has not been raised. It terminates at the end of 2006 and applies to bits of the south-west and to many parts of the country. The Government have made no pronouncements on what will happen after the end of the HFA scheme. The sum involved is not large, but, given the perilous state of farming's economics, particularly in those disadvantaged areas, even it is important. We should expect a statement from the Government on their intentions.

The fallen stock scheme is clearly causing a number of problems. The Government should look much more carefully at extending the concept of exemptions. They should also look urgently at ways of licensing biodigestion systems as an alternative to the fallen stock scheme. That can take place on farm or in some local, centrally located sealed biodigestion system.

The situation in the south-west, as the hon. Member for Somerton and Frome described, is extremely serious. Farmers look to the Government, as they have for the past 57 years, for some guidance as to the future, but, sadly, they do not seem to be getting it. We have an excellent opportunity, however, due to the fact that someone who is, I hope, a would-be Minister, the hon. Member for West Carmarthen and South Pembrokeshire, is replying to the debate. With similar problems in his constituency, he perhaps has more understanding of these issues than any Minister in the Department.

Perhaps the hon. Gentleman can take the messages that have been sent out during the debate back to the Government. There is genuine concern out there in the farming community and in the wider countryside. Those communities look to the Government for an answer of some sort—not necessarily solutions, but guidance on how answers can be achieved.

First, I congratulate Mr. Heath on securing an important and interesting debate. As Mr. Paice said, due to the constituency that I represent, I am well versed with the message and the information. Although I do not want to get into a competition with the hon. Member for Somerton and Frome, I might have almost as many dairy cattle in my constituency as he has in his. South-west Dyfed, as the area used to be called, or south-west Wales is one of the major dairy areas of Europe. I do not think that I can cover every issue raised in debate. I will concentrate on the dairy sector and TB while trying to respond to a few points made in the hon. Gentleman's opening speech.

I hope that the hon. Gentleman has not already had this further information on progress made in relation to traditional orchards. DEFRA, in consultation with English Nature, has developed the criteria, which are being submitted to the European Commission. Those criteria clearly define traditional orchards of particular environmental value, so that they will be eligible for the single farm payment. I hope that that gives him some reassurance.

Turning to the dairy industry and its problems and to the issues involving the power of the supermarkets, the Government are well aware of producer concerns about the power of supermarkets and that the market is unfairly balanced. As Members will probably recall, the supermarket sector was subject to a major investigation by the Competition Commission in 1999–2000 and was investigated again in 2003 when bids were being made for Safeway. The commission report of October 2002 concluded that the industry was broadly competitive. However, it recommended the establishment of a code of practice that would put relations between the major supermarkets and their suppliers on a clearer and more predictable basis.

The code of practice was set up and then reviewed by the Office of Fair Trading in 2003. The OFT report on that review found a widespread belief among suppliers that the code was not working, but no hard evidence to support that. Given the reluctance of suppliers to provide specific evidence of alleged breaches of the code, the OFT commissioned a focus compliance audit of the four supermarkets bound by the code to establish hard facts as a basis for any further action. The OFT hopes to publish the auditor's report in the next few weeks. Neither I nor the Department can pre-empt those findings, but I hope that firm evidence will come forward and action can then be taken.

On the dairy sector and the farm-gate price, as the hon. Member for Somerton and Frome identified, the south-west is a, if not the, major supplier of raw milk to the British market. The reasons for the current UK farm-gate price of milk are complex, as hon. Members have already mentioned, with different variations and combinations applying at different times. Factors such as exchange rates, the price on the world community markets, domestic supply and demand, the low value of the product mix, the low level of product innovation and the structure of the UK dairy industry and co-operatives have all led to the current situation. The average price for milk deliveries in November 2004 was 19.6p per litre.

Members have understandably asked what the Government are doing and can do. It should be made clear that price negotiations between producers and processors or between processors and the supermarkets are private commercial matters in which the Government cannot get involved while current competition rules apply. However, because most problems with the farm-gate price are matters for the industry to address, the Government have taken action, in line with our strategy for sustainable farming and food, to facilitate industry action and get people working together. That is why we have established the dairy supply chain forum, under the chairmanship of my noble Friend Lord Whitty, to consider, among other things, how the sector can improve efficiency through collaborative action.

The forum was created to increase the efficiency and promote the sustainable development of the dairy supply chain. It is working to identify the challenges facing the industry and to provide effective and innovative approaches to those problems. The forum has had a positive effect in bringing together all sectors of the dairy supply chain, and we hope that trust and openness will increase. We hope also that that will change the culture of the supply chain, which, as my hon. Friend Mr. Drew pointed out, has been one of confrontation since the abolition of the milk marketing boards.

A number of robust discussions have taken place and I hope that developments will occur, particularly in relation to the comments made by Mr. Clifton-Brown. It is clear that the British industry is producing too much of a low-value product and importing too much of a high-value product. I hope also that the developments that emerge from the dairy supply chain forum will work. There has been more and more internal vertical integration of co-operatives. I understand that, as a result of the acquisition of processing capacity, Milk Link is processing some 70 per cent. of the milk produced in the south-west.

There is movement, and the industry is responding to the need for vertical integration. Although I understand the comments made about Milk Marque, it was broken up because there was clear evidence that the pricing arrangements were not compatible with a fair market. The developments on greater vertical integration have meant that a number of co-operatives are involved in processing. That, I hope, will encourage innovation and the development of new, higher-value products that will improve the situation for the producers.

All Members who spoke mentioned the TB problem, which is clearly major and which the Government take extremely seriously. We are absolutely determined to tackle it by working in partnership with farmers, vets and those with wildlife interests. We all have an important role to play. The Government have not been standing still on bovine TB. Following consultation last year, the Department announced a range of new measures to improve surveillance and reduce the risk of disease spreading to new areas. Those measures include changes to the frequency of testing and the imposition of movement restrictions immediately a test becomes overdue.

The Department has been working closely with stakeholders on the development of a new TB strategy for publication early this year. We have set up a stakeholder group to develop a detailed proposal for implementing the pre-movement testing of cattle, which addresses a point made by Andrew George. Members said that the solution is obviously a vaccine. We are carrying out a great deal of research on bovine TB, vaccine development, badger culling trials, the transmission of disease within and between species, and improved diagnosis. That covers the points made about the spread of TB among deer as well.

The Government are prepared to consider badger culling, but only if the scientific evidence available supports that proposal as a cost-effective and sustainable solution. The data from the four-area trial in Ireland will form part of the evidence used to assess potential policy options under the new bovine TB strategy. Work has already begun on the requirements for a field trial for a badger vaccine, while further work is still required on vaccine delivery, monitoring the effective immunisation of badgers and the effect of exposure to non-target species.

The tone of the debate has been that there is a serious crisis within agriculture in the south-west. The Department's policy is still to develop the strategy for sustainable farming and food, which is a comprehensive and long-term plan for the development of the industry. It is designed to support the farming industry through this period of change and leave it well equipped to succeed into the future.

One of the key underlying features of the Government's approach is a readiness to help farmers to make the change. Funding for the strategy of £500 million, which was announced in 2002, has been allocated and some £200 million will be spent on the strategy in 2005–06. We have a clear vision for the future of agriculture and a strong strategy for achieving that vision. We have ensured that all those with a stake in sustainable agriculture are part of the strategy, as a partnership is the only way to deliver what we want for and from farming. At the same time, we continue to address immediate challenges such as TB with robust, evidence-based policies.