29 December 1995

Monetary union will be bedrock of CAP- Naish

Decisions over economic and monetary union and enlargement will have a profound effect on the political and economic stability of our continent over the next generation, Prime Minister John Major told the Commons. In this special report

Tony McDougal and Shelley Wright canvass opinion and offer a guide to the EU decision-making process.

LONG-TERM survival of the CAP may rest on economic monetary union, and the UK should be preparing to enter a European single currency.

British agriculture has undoubtedly benefited from pulling out of the exchange rate mechanism (ERM) in September 1992 and corresponding devaluations of the green rate (28%), leading to increased support prices and competitive exports.

But NFU leader Sir David Naish said the situation had changed over the past six months, due to the abolition of the switch-over co-efficient mechanism in June 1995 and the introduction of fixed green rates on all direct payments for strong currency nations, including France and Germany.

National aids to compensate for the effect of devaluation of weaker currencies since 1992 are also in the pipeline. The French government is eager to approve payments, and the Germans likely to follow suit.

Farm incomes in the UK have risen in most sectors over the past few years. But if costs begin to rise, and there are already some signs, and sterling continues to devalue against the German mark, the UKs profitability, compared to strong currency countries, will be more vulnerable.

Sir David warned that the UK could come under pressure if it failed to join a single monetary union and carried on with successive devaluations, threatening the continuation of the CAP.

Monetary union would provide stability, remove the uncertainty surrounding the exchange rate fluctuations and reduce business transaction costs.

Turning towards future CAP policy, Sir David said the NFUs long-term belief that the 1992 CAP reform package did not meet the requirements of the GATT and the incorporation of the Central and Eastern European countries had been vindicated.

Further reforms of the CAP had to be based on the findings of the last GATT round, future World Trade Organisation talks and global policy.

Sir David stressed that the out-moded production-linked support would gradually be replaced by decoupled payments. "Agriculture will become more market orientated," he said. "However, until EU support prices and production restrictions are removed, the commission would still play a significant role in managing the market. For instance, it will need to ensure an adequate supply of cereals on the EU market for as long as the current world shortage continues."

Milk quota discussions

Commenting on milk quotas, Sir David said farm commissioner Franz Fischler had recently told EU farm union leaders that they would be discussed in 1997 but would last at least until 2000.

Sir David agreed that incorporation of the Visigrad Four countries into the CAP (Hungary, Poland, Czech Republic and Slovakia) would be expensive. But the commissions policy of switching away from commodity support in favour of social/environmental aid would lower Western European prices while at the same time encouraging prices in Eastern Europe.

Issues set to dominate NFU affairs in Europe in the next year include animal welfare and a host of European legislation, including nitrate vulnerable zones, integrated pollution prevention control and the recent transport directive.

"We will also be keeping a watching brief on changes to food laws, the application of biotechnology, standards in slaughterhouses and food processing plants."

"And we will be paying particularly close interest to any changes in the agri-food industry and scrutinising research and development aid in this sector. I have been in touch with various sectors of the food chain – retailers, manufacturers, caterers – and I hope we shall be in a position to take a concerted approach to safeguard primary R&D, which so obviously benefits consumers."