12 May 1995

Martin Howarth

National Farmers Union

AT FIRST sight, British agriculture has gained greatly from our forced exit from the EMS in 1992, and the more recent falls in the value of sterling.

Why, then, deny ourselves further benefits of higher output prices and support payments by locking into fixed exchange rates?

To answer this, one must remember that Golden Wednesday in 1992 was the first occasion in the last 20 years when the benefits of a devaluation were not quickly eroded by higher inflation, wage costs and interest rates.

For example, since 1980 the green £ has been devalued 62%; over the same period the cost of agricultural inputs in the UK have risen 67%. But for a number of reasons, including perhaps that sterling was previously over-valued, the benefits from the 1992 devaluation have not yet been eroded.

Even if this situation continues, there could be other strong benefits from a single currency. Three stand out:

&#8226 In the past it has proved difficult to run a common policy without a common currency. A complex agri-monetary system has been needed, which has led to fraud and inflation.

&#8226 British farmers – especially in the cereal and lamb sector – are now heavily dependent on a single European market. The full benefits of this can only be obtained with a single currency.

&#8226 With a stable single currency, it would make sense to trade agricultural goods in that currency rather than the dollar. Currently, our competitive position is almost totally influenced by the dollar exchange rate.

Despite these advantages, trying to introduce a single European currency when the economic conditions were not right could wrench the European Union apart. Sterling should only enter when the economies of all the countries concerned have converged significantly.

We should therefore wait until a decision is required and then choose whether to enter.

But to rule out participation now would not only deny ourselves influence over the shape of the monetary arrangements, but would also risk further eroding British influence in European policy as a whole.