£300m cut in subsidies feared
Farmers may face a £300m cut in their European subsidies next year, analysts warned. The end of the freeze on the exchange rate for the green pound and the arrival of the single currency will combine to strip out agriculture support.
The exchange freeze, introduced in early 1997, has already absorbed an 11.5% revaluation of the green pound. A further 7% revaluation is expected in the next few months, according to Peter Fane of Eurinco.
When the freeze ends next January, the sudden currency revaluation could mean the same subsidy in European currency units will be worth 18 to 20% less in sterling than it is at the moment.
“The implication of these changes make the Agenda 2000 proposals pale into insignificance,” Mr Fane told a farmers question-time meeting at the National Agricultural Centre in Warwickshire. “We will be looking at real reductions, possibly up to 19%, in headage and area payments, as well as some intervention price cuts.”
He predicted that the exchange rate fall would cost farmers “very dearly”. The problem would be compounded by the start of the single European currency. That could start another surge in the pound because it would be seen as stable refuge for investors.
Ian Stockley, chief agricultural manager with Lloyds TSB, advised farmers to consider opening accounts in euros to pay in European Union support. This account could be used to pay for items such as fertilisers and chemicals traded by multinational companies.
Tony Donaldson, a senior economist with the English National Farmers Union, said a worst-case scenario, could mean the loss of around £300m.