28 March 1997

Revaluation of green rates to trim prices 3%

By Philip Clarke

GREEN rates, used to convert Brussels support from ecus into sterling, are to be revalued tomorrow (Mar 29), knocking over 3% off prices.

Sterling has recovered strongly since early election jitters last week, opening up a 6.4% gap above the existing green rate.

This difference now has to be halved. As FW went to Press, a new green rate of about 74.4p/ecu was forecast, compared with the 77p/ecu currently in force.

If confirmed, this will knock about £3/t off the April cereal intervention price, as well as lowering the value of export restitutions to UK traders.

Livestock producers will suffer another 2p/kg lw drop in compensation for OTMS cull cows, with 3p/kg off prime cattle going deadweight. Beef intervention prices will also be hit.

And for dairy producers, another 3% off butter and skimmed milk powder going into intervention is equivalent to about 0.8p/litre off the milk price, though this will not have a direct or immediate impact on milk cheques. The revaluation should also take another 1p off super-levy – now estimated at about 27.3p/litre.

The implications for area aid are unclear until the exact size of the revaluation is known. But if there are any cuts, they should only be marginal.

Farm ministers last week agreed to limit green rates used to calculate direct income payments to no more than 11.5% above those used for setting support prices.

Currently this gap stands at 8.5% – the result of two green £ revaluations since area aid was set last July. The UK therefore has another 3% to play with.

If tomorrows revaluation is any bigger than this, then there will have to be some reduction in the rate used to calculate area aid on July 1. And Ministry officials are quick to point out that there is still time for another green £ revaluation before then.

Early optimism that last weeks Brussels deal should protect UK area aid rates appears to have been misplaced.

But on the livestock side, headage payments are fixed on Jan 1. Currently, the gap in green rates stands at 5.4%. So, even with this weekends revaluation, there is still "a fair amount of headroom", according to NFU chief economist, Sion Roberts. It is therefore likely that, come next January, suckler cow and beef special premia will not change.

&#8226 Last week farm ministers meeting in Brussels also agreed, in principle, to compensation for loss of earnings by UK farmers as a direct result of green £ revaluations. This will be co-funded by the EU and MAFF, though Whitehall intends to opt out of its contribution. The NFU is currently preparing a case for compensation.