20 November 1998

No aid paid in euros next year – so no cheap loans

By Robert Harris

UK FARMERS will not be able to receive Brussels subsidies in euros next year, effectively ending the hope of cheap loans in the new currency.

Quite when farm euro payments will exist remains unclear, though food companies and agricultural commodity traders will have access to euro funded market support measures by autumn 2000.

In response to a recent question in the House of Commons, farm minister, Nick Brown, said agriculture departments intended to offer export refund and intervention payments in euros to the trade by that time, to allow them to compete equally with agri-food traders in the eurozone.

"However, there are significant obstacles to overcome," said Mr Brown. "Clearly, the need to put in place the new agrimonetary arrangements by Jan 1, 1999, must take precedence. We need to safeguard CAP payments for all recipients, the majority of whom will continue to want payments in sterling for the time being."

He said he would give "further thought" to extending the option to CAP direct payments to farmers. But a statement released afterwards said: "It is unlikely that direct payments could be offered in euros for some time after the timetable for market support measures."

Low interest rate

The main advantage of a large euro income is that it would allow farmers to take advantage of low interest rate euro loans, without the need to convert sterling to service the debt, thereby eliminating exchange rate risk.

"We have pushed to get the euro payments option as soon as possible," said NFU chief economist Sion Roberts. "At least this is a step in the right direction."

Francis Mordaunt of farm business consultants Andersons, was less optimistic. "The government is really saying forget it. We will be much closer to joining EMU by autumn 2000. It will hardly be worth putting the measures in place."

Euro loans will be less attractive by then if, as expected, the interest rate gap narrows as the UK prepares to join the eurozone.

But it may still be worth opening a euro account, since many of the big grain merchants, milk buyers and supermarkets should be able to pay farmer suppliers in the new currency after Jan 1, 1999, said Mr Roberts.

That could provide enough euro income to source cheaper inputs or machinery, and avoid the need for those companies to bear exchange rate costs which were likely to be passed down to farmers. &#42