3 April 1998

Deep cuts only option to heal beef sector

What does Agenda 2000 hold in store for beef producers?

Europe editor Philip Clarke reports

OF ALL the sectors up for reform under Agenda 2000, it is beef producers who face the biggest drop in prices – both in terms of intervention support and in actual farmgate values.

At 30%, the cut is clearly a deeper one than the 20% Brussels has in store for arable farmers and the 15% for dairymen.

But, says reform architect Franz Fischler, this is the only viable strategy to restore long-term balance to the sector. "Beef consumption has fallen by 10% in the last five years in the face of competition from other meats and the sectors image problems. And after the year 2001, forecasts are for renewed growth in production. The risk is therefore one of rising surpluses on the European market."

Slaughtering more calves is not acceptable, while quotas are inefficient and complex to administer. So price cuts it is.

But producers should not feel the full effects, says the commission. Actual farmgate prices are unlikely to fall the full 30%, while farmers should also be able to adjust their production structures, save on input costs and increase efficiency.

Furthermore, there will be a substantial hike in headage payments to offset some of the impact of lower prices (see table below for details), together with more generous payments for extensive farming.

But the NFU warns this may not be enough to stave off a drop in farm incomes, especially for intensive beef finishers who exceed EU stocking rate limits. In particular, it believes markets will reflect the entire 30% cut in intervention prices.

The large gap between EU prices and world prices, restrictions in the use of export refunds under GATT and stronger competition from white meats – which will benefit most from cheaper cereals – will push prices down all of 30%, argues the NFU.

As for compensation, MAFF sources suggest producers should get back about 80% of the drop in prices in the form of increased headage payments – a better result than for cereals or dairying.

But the NFU is concerned by the stronger emphasis being given to national payments within the beef package, which amount to 50% of the extra funds available. It has made great play of the wording of the draft proposals which say "member states shall make additional payments…within the limits of the global amounts set out…"

This, says the NFU, provides governments with the option not to pay the full amount. But commission sources say this is not the intention – the national envelopes will be compulsory.

Despite this, there is still scope for market distortion from the measure, as governments are given great flexibility in how to allocate the funds.

For example, they could be paid as additional compensation above the 90-head limit on beef special premium claims, or allocated to heifers. Or they could be used to enhance suckler cow premia or to compensate producers who exceed the stocking rate criteria. Alternatively, government could pay the compensation as area aid which, on a flat rate basis, would be worth about 50ecu/ha (£39/ha).

Complex package

Assessing the impact of this complex package is difficult, given the flexibility of the national envelopes. There are also unknowns surrounding the environmental schemes that governments will have to introduce to qualify for payments under Agenda 2000.

But, the greatest uncertainty of all is the future movement of sterling and changes to the agrimonetary arrangements. Yes, there will be some fine tuning of Agenda 2000 as ministers start to negotiate on the package later this year. But it is the effect of currency that will have the greatest bearing on producer returns, determining whether they make a profit or a loss. &#42

AGENDA 2000 – NEW LIVESTOCK HEADAGE PAYMENTS

EU payments:

&#8226 Beef special premium for steers increased in three stages from 109ecu a head (£84 a head) to 170ecu a head (£132 a head) in 2002, paid twice in a lifetime.

&#8226 Beef special premium for bulls increased in three stages from 135ecu a head (£105 a head) to 220ecu a head (£171 a head) in 2002, paid once in a lifetime.

&#8226 Suckler cow premium increased in three stages from 145ecu a head (£113 a head) to 180ecu a head (£140 a head) in 2002, paid annually. Up to 20% of suckler cow premiums can be claimed on heifers.

&#8226 Dairy cows will qualify for a 32.3ecu a head (£22 a head) premium.

National payments:

&#8226 It is not possible to be specific about national payments for bulls, steers and suckler cows as governments have flexibility in how to apply policies. The NFU estimates it could amount to an extra 65ecu (£50) a head for steers, 85ecu (£66) for bulls and 70ecu (£54) for suckler cows, by 2002.

National payments may be made as headage payments or as area aid.

&#8226 Maximum payments (EU element plus maximum national element from 2002):

Steers 232ecu a head (£180 a head)

Bulls 310ecu a head (£241 a head)

Suckler cows 215ecu a head (£167 a head)

Dairy cows 70ecu a head (£54 a head)

Area payments 350ecu a ha (£142 a acre)

&#8226 Extensification payments increased to 100ecu a head (£78 a head) for those with less than 1.4 livestock units/ha.

NB Assumes current frozen green rate for converting ecus to sterling of £0.776/ecu. This is highly likely to change as a result of new agrimonetary rules before the end of the year and further currency movements.

AGENDA 2000 – BEEF SUMMARY

&#8226 30% cut in beef intervention price in three equal stages to 1950ecu/t (136p/kg dw) by July 1, 2002.

&#8226 Intervention to be replaced by private storage aid (as in the pig sector) from July 1, 2002.

&#8226 Livestock headage payments increased to partially compensate for the price cut (see separate table).

&#8226 50% of the increase to be put into a national envelope, to be paid out according to national criteria.

&#8226 Beef special premium to still be based on regional ceilings (of 1.4m for the UK), with cuts when this is exceeded.

&#8226 Suckler cow premium to still be based on individual quotas, but with national ceilings also introduced (at 1.63m head for the UK).

&#8226 Headage payments to be limited to 2 livestock units/ha, with extensification bonus below 1.4 livestock unit/ha.

&#8226 Deseasonalisation premium maintained in countries with 60% plus steer beef where 35% are slaughtered between Sept 1 and Nov 30.

&#8226 Calf processing scheme to end.

NB. Assumes current green rate of £0.696/ecu for calculating support prices.