By Sam Fortescue

 THE GOVERNMENT is investigating reports that farmers in Scotland, Wales and Northern Ireland have built up large holdings of clean or leased milk quota.

Officials suspect that several farmers across the UK are amassing artificially high levels of quota to attract up to 12p/litre in new dairy premium payments.

 The farmers could net millions of pounds of public money under the premium, paid as part of the single farm payment and calculated according to quota registered on Mar 31, 2005

 A Scottish Executive (SEERAD) official has confirmed to farmers weekly that it is investigating one particular transaction of quota from England to Scotland which is rumoured to extend to tens of millions of litres.

Quota broker Ian Potter said the trade raised suspicions because it bore no relation to the buyer”s base quota. “Someone”s pushed the boundaries even further than the Rural Payments Agency ever imagined they would, and that”s what has driven them to investigate,” he said.

According to a DEFRA source, the farmer at the centre of the trade, and others like him, could fall foul of EU legislation because their quota holdings are set to garner “out of the ordinary” support payments.

 But the same source admitted that DEFRA and the devolved administrations decided in early 2004 to ignore warnings on the matter and push on with rolling out the dairy premium.

Ian Potter said: “The people involved in these transactions are businessmen. They”ve taken some of the best legal advice in the UK and are aware of the risks and the rewards. They also have the details of conversations with people in SEERAD and the RPA who confirmed that what they were trying to do was OK.”

 He predicted a fierce legal struggle if the government decided to take action against those involved because of the huge sums of money at stake.

“Margaret Beckett has said on every platform she”s spoken on that farmers must be more market oriented, and that”s exactly what they”ve done,” he added.

William Neville, a partner with agricultural law firm Burges Salmon, said that farmers were acting within the confines of the policy laid out by DEFRA and could not be accused of acting “artificially”.

 “Some producers have cashed in on the present values of quota inflated by the future value of entitlements while others have bought to obtain future value of entitlements. Neither are behaving artificially in the context of the market place created by DEFRA.”

 Lawyers at both DEFRA and SEERAD are expected to publish advice on the artificiality issue before Mar 31.

sam.fortescue@rbi.co.uk