8 January 1999

Strength of euro boosts UK support

UK support prices received a boost this week as the euro gained against the £ due to strong demand for the new currency in its first days of trading.

But this demonstrates the increased volatility that can be expected in the coming months.

"People now realise there is potential for big change," says Gerald Mason of the Home-Grown Cereals Authority. "The euro could easily go down as fast as it went up."

That is because support prices are now based on the daily £:euro exchange rate published by the European Central Bank. The previous fixed green rate system protected against daily currency shifts.

If the new system had been in place during the final few days of last year, the intervention price would have varied between £84.38 and £85.49/t, Mr Mason says.

Once the system came in to play, this potential volatility was borne out. The euro was worth about 70p when it was launched on Monday (the same value as the ecu, which it replaced). By close of play on Tuesday, it had strengthened to 71.22p, raising the barley intervention price £1.70 to £87.02/t. On Wednesday, the euro eased back to 70.76p, bringing the intervention price back to £86.46/t.

Livestock farmers are also affected, although beef special premium and suckler cow premium payments remain unchanged. In theory, they are calculated using the prevailing rate on Jan 1 (when the euro was worth 71.11p), which should have knocked about 8% off their value. But Brussels has agreed to compensate fully this year.

But over 30 month-scheme payments, also set on the first day of each month, have increased by about 1p/kg, to almost 57p for cull cows and to 64p for clean cattle. The calf processing aid scheme payment is fixed a month in advance. It will, therefore, remain at £55.85 a head through January, but could climb £1 in February.

Milk values have also gained about 0.3p/litre in theory, though, like grain intervention prices, they will change daily. If the euro remains strong over coming weeks, Milk Marque may well be able to squeeze a little bit more out of this months selling round. &#42