19 December 1997

Refusal to apply for green £ aid is shortsighted

By Philip Clarke

GOVERNMENTS continued refusal to apply for compensation for this years 16% green £ revaluation is shortsighted.

Farm minister Jack Cunning-hams reluctance to request the aid is understandable, says consultant Francis Mordaunt of Andersons. Of the £977m available, 50% is at the UKs option and is unlikely to be forthcoming from the Treasury. And of the remaining 50% from Brussels – worth £488m – only about £147m would actually come from EU coffers.

"But the case for compensation is becoming overwhelming – particularly for beef and dairy farmers," says Mr Mordaunt. "If nothing is done, many farm businesses will not survive. The long-term cost of the damage to jobs in the rural economy, and the knock-on effects to urban industrial suppliers and processors would far outweigh the short-term cost to the Treasury."

The problems facing the beef industry are clear – cheap imports backed by extra subsidies, lack of an export market, ineffective intervention and extra costs due to higher standards in the UK.

But out of the maximum £977m available, only £149m is earmarked for beef producers – or 16% of the total.

Aid would be paid in three tranches – 50% in 1998, 33%in 1999 and 17% in 2000. Thereis no scope for governmentsto switch funds between sectors, but they can apply for as much or as little as they like within each "envelope".

On the unlikely assumption that all the compensation is applied for in the beef sector, Mr Mordaunt estimates that could be worth about £49 a head in suckler cow premium and £29.50 a head extra beef special premium (if that is how it is paid out). "Spread over three years, this is small in relation to the size of the problem," he says.

There could, however, be a further aid package from Jan 1, 1998, when headage payments are due to fall 4.2% due to this years revaluations. This would allow an extra £5 a head for beef animals and 50p a head for ewes.

A more substantial £446m is up for grabs for the dairy sector – equivalent to 3.18p/litre over three years. But Mr Mordaunt notes that milk prices fell by about 4p in the 12 months to September, and have since dropped another 2p. The first instalment of compensation, worth just 1.59p/litre, would have little impact on the overall drop in income.

For cereals, Mr Mordaunt estimates the maximum aid rate at £87.80/ha (£35.50/acre) over three years, with half paid in the first tranche in 1998. "At current prices it would not be hard to justify. Feed wheat is currently trading at £8/t below intervention, with barley at £12 below. Since Jan 1997 intervention has itself fallen about £14 to just £85/t."

A further £10.90/ha (£4.40/ acre) is available, in one instalment, for cuts in area aid in 1997 due to green £ revaluations. And sugar beet growers could get an extra £231/ha (£93/acre) as their prices are linked directly to green currency.

"We still think it unlikely that the UK government will apply for compensation, even though the case is becoming overwhelming," says Mr Mordaunt. "Luxembourg and Germany granted their farmers the maximum possible aid. And Belgium paid the full 50% EU element, topped up with 15% from national funds.

"In the UK, the first tranche is needed now. If sterling then weakens in 1998, as some are forecasting, then adjustments can be made in the second and third tranches, as appropriate."

Francis Mordaunt… the cost of rural unemploy-ment will be far greater than short-term aid.