18 February 2000

SHEEPMEAT SHAKE-UP IS IMMINENT BUT…

A long-awaited review of

the sheepmeat regime is

on the cards for later in the

year. But dont expect too

much to come out of it,

warns farmers weeklys

Europe editor Philip Clarke

SHEEP producers can justifiably claim to have been overlooked by Brussels.

Last year saw one of the biggest ever shake-ups of the common agricultural policy, with Agenda 2000 heralding significant changes for arable, beef and dairy farmers.

But sheep producers have been left out… until now.

Brussels has recently commissioned a major study into sheep production in the UK, Ireland, France and Spain, with a view to launching a review of the sheepmeat regime later in the year.

How radical this will be depends on findings of the evaluation. "Our job is to look at the regime, identify what has happened over the first 10 years and judge how it has performed against its objectives," says Stuart Ashworth of the Scottish Agricultural College, who is co-ordinating the study.

Given that these objectives were to stabilise markets and protect farm income, the scope for improvement appears considerable.

The biggest grievance expressed by producers is the sheep annual premium fails to compensate farmers properly for falling prices.

"At the time the sheep regime was reformed in 1992, it was assumed that prices in different member states would converge," says Kevin Kinsella, head of livestock at the Irish Farmers Association (IFA).

But a glance at recent EU reference rates shows that has not happened. In early January, for example, sheepmeat was valued at 166p/kg deadweight in Ireland, 175p/kg in the UK, 266p/kg in France and 337p/kg in Spain.

There are several reasons for this, including the fact that some countries have a structural surplus of sheep, while others have a structural deficit. "There has also been a re-nationalisation of markets, especially since the BSE crisis," says Mr Kinsella. "French consumers are prepared to pay a premium for home-produced product."

Not compensated

The result is that producers in the UK and Ireland, where prices are consistently below EU levels, are less than fully compensated by the ewe premium, which is calculated using the EU average (see table).

This problem is compounded for the UK by the strong £, which distorts the picture when prices are converted into k. For example, 170p/kg at 70p/k equates to k243, but is worth k283 at 60p/k. This makes prices appear better than they really are when calculating the EU average.

Another complaint is the relatively high reward for light lamb producers in southern member states. Ewe premium to these producers is paid out at 80% of the rate for heavy lamb producers, yet the price received for light lambs is almost double that of fat lambs.

As part of any reform, the Irish also want to see greater control over imports of frozen New Zealand lamb. Even though little ends up on their market, the 227,000t coming into the EU undermines prices everywhere.

While the IFA accepts that the volumes cannot be cut, the commission should take control of issuing import licences, it argues, to prevent the New Zealanders from dumping cheap product at Christmas and Easter.

The other big gripe with the current regime is the maintenance of the so-called stabiliser. This was introduced in the late 1980s in response to rapidly expanding sheep output. It applied an automatic cut in premium as sheep numbers increased.

By 1992, when the MacSharry reforms did away with the old sheep variable premium (on finished lambs) and focused all support on ewe premium, this stabiliser had reached -7%. And there it has stayed, taking 7% off the basic support price, despite the fact EU production has since been in decline.

As a result, sheep producers have been stuck in a farm income trap, says the IFA. Abolishing the stabiliser would add k5.52 (£3.92) to the value of the ewe premium, and k1.66 (£1.18) to the less favoured area supplement.

To achieve this, the Irish would be prepared to surrender some of their sheep quota. But this is opposed by the NFU. "The Irish have plenty in reserve. We dont," says livestock adviser Kevin Pearce. "The EU is still less than self-sufficient in sheepmeat. The last thing we want is to start contracting the industry.

"Sheep farming is one of the poorest sectors in EU agriculture. Self-sufficiency is declining and we are importing more. Yet sheep production is crucial for employment and the environment."

On the face of it, these grievances would suggest there is a strong case for radical reform.

But the EU commission is more circumspect. "There is scope for improvement," admits one senior official in Brussels. "But tight budgetary constraints imposed by last years Berlin summit do not give much room for manoeuvre."

He dismisses many of the arguments advanced by the farming unions. For example, while there is diversity at the moment, prices had been converging for much of the 1990s, until the BSE crisis threw all livestock markets into chaos. "We have just had a couple of odd years. We should not jump to conclusions."

Prospects of changing the way New Zealand lamb import licences are handled would also seem slim, with the approach of fresh World Trade Organisation talks.

Stabiliser

Even if it were possible, the merits of restricting imports at Christmas and Easter are also questioned by the commission. If New Zealand was to delay shipping product until after Easter, that would burden the summer trade, when a larger number of producers market their lamb crop.

As for the stabiliser, the commission is even more dismissive of the unions arguments. "At the time the regime was last reviewed, the basic price was cut by 7%, but that money was then redirected into the less favoured area supplements. Total funding was not reduced," says the official.

"The word stabiliser is a misnomer anyway, as we now have sheep quotas. The term has remained, but it almost incites people to wishful thinking."

What form the review takes remains to be seen, though it seems likely to be more modest than many are hoping. &#42

&#8226 Dont expect too much.

&#8226 Restricting imports?

&#8226 Abolish the stabiliser?

EUREVIEW

Ewe premium calculation

Ewe premium calculation

k/100kg p/kg

Base price 504 358

Stabiliser -7% -7%

Stabilised price 469 333

EU market price 325 231

Loss of revenue 144 102

Co-efficient 0.1568 0.1568

Ewe premium k22.5/ £16/

ewe ewe

(Loss of revenue x coefficient)

LFA supplement k6.75/ £4.80/

ewe ewe

(Ewe premium x 0.3)

NB: Light lamb producers in southern member states get 80% of the full rate of premium

At last the sheep industry faces a review from Brussels, but it is unlikely to lead to more control over imports of frozen New Zealand lamb.