1 November 1996

Revalued green £ deals blow

to UK support

CHANCELLOR Kenneth Clarkes decision to raise interest rates by a quarter per cent to 6% on Wednesday (Oct 30), sent sterling soaring, making a green £ revaluation inevitable today (Friday).

Green exchange rates are used to convert Brussels support payments into national currencies and the revaluation means fewer £ for the same number of ecus. This will put more pressure on agricultural markets.

As fw went to press on Wednesday, the likely cut was 2.75%, bringing the new ecu rate from 83p to 81p.

The immediate impact includes:

&#8226 A 2p drop in the rate of compensation for cattle slaughtered under the over-30-month scheme to 73p/kg lw.

&#8226 A 5p drop for OTMS cattle sold deadweight to about 145p/kg for culls and 121p/kg for prime cattle.

&#8226 An equivalent reduction in 1997 suckler cow premium, beef special premium and extensification premium payments.

&#8226 A cut in the cereal intervention price from £100.30/t to about £97.50/t.

The lower intervention price for cereals has already been "factored in" to the current ex-farm value of about £95/t for wheat and barley. This is still some £5 above the level at which intervention would become viable for traders.

But, with grain markets now currency-led, further falls are possible if sterling continues to rise. The significance of a lower floor price would then be felt.

Other casualties of the revaluation include milk prices and 1996 sheep annual premium.

Traders suggest the change has knocked about £65/t off butter intervention and £40/t off the theoretical skimmed milk powder rate.

This years sheep premium will also be reduced as a consequence. The commissions latest estimate (which cannot be finalised until the end of the year) is 18.21ecus/head, which converts at the new rate to about £14.75 compared with £15.18 at the old rate.

Looking further ahead, the revaluation also signifies lower area aid next year. The actual payments depend on the green rate prevailing on July 1, 1997. But according to consultants, Andersons, any further changes are unlikely. Under the EUs complex agri-monetary rules, rates for calculating area aid and headage payments will now be fixed until Jan 1, 1999. Any further revaluations will only affect intervention and export subsidies, and there could be scope for compensation from Brussels for any income losses which arise as a result.n