4 April 1997

Set-aside and support cash to be trimmed

By Philip Clarke

ARABLE area aid and set-aside payments are to be trimmed for 1997/98 following last weekends change in green exchange rates.

Sterling appreciated right up to the end of the 50-day monitoring period, giving rise to a 3.5% revaluation. This was bigger than forecast and knocked another 3.4% off support prices and export subsidies.

"This brings the total revaluation of the green £ since last summer to 12%, which will put an additional burden on incomes," said NFU president, Sir David Naish. It has certainly cut further into the 30% UK farmers gained from devaluations between Sept 1992 and Nov 1996.

The immediate impact includes:

&#8226 A £3.25 drop in April cereal intervention to £93.38/t.

&#8226 Another 2.2p off OTMS cull compensation to 66.8p/kg lw (double for deadweight).

&#8226 Almost 4p off the OTMS rate for prime cattle to 111.3p/kg dw.

&#8226 A 3.4% drop in the value of the calf processing scheme to £111.40 for beef breeds and £89 for dairy (from May 1).

&#8226 About £76/t off butter intervention and £53p off skimmed milk powder, equivalent to about 1p/litre.

&#8226 A new milk super-levy of 27.23p/litre (compared with 31.42p last year).

The new green rate (of 74.2p/ecu) is also more than 11.5% below the rate currently in force for area aid and set-aside payments, and this must now be cut to stay within the threshold.

As a result, English growers will see 1997/98 cereal aid drop 0.74% to £264.90/ha (£107.20/acre), with set-aside down to £335.55/ha (£135.80/acre). Their counterparts in the Scottish non-LFA will see cereal aid at £244.27/ha (£98.85/acre) and set-aside at £309.41/ha (£125.21/acre) – assuming no scale-back.

Whether this is the final position for the new season remains to be seen. There is still time for another revaluation before area payments are set on July 1. With sterling continuing to firm as currency markets anticipate a rise in interest rates following the general election, that remains a distinct possibility.

Meanwhile, the NFU is pressing ahead with its case for compensation. It has to demonstrate the extent to which UK farmers have suffered income loss as a direct result of lower intervention prices. The problem is separating out how much of the income fall is due to green rate changes and how much is due to the depressing nature of having a strong sterling.

Brussels has set a limit of £154m, jointly financed by the EU and the UK government. But this will only be paid if the UK puts forward a proposal asking for a compensation scheme, explains NFU chief economist, Sion Roberts.