5 July 2002

Stronger i will see rise in arable area payments

By Robert Harris

UK arable area payments will rise by about £40m this year after the k held on to its recent gains against the £.

Cereal, set-aside and protein payments are set to rise by about £10/ha (£4/acre) for 2002 crops. Oilseed and linseed aid will still fall, but by less than expected.

Arable area payments are converted from ks into sterling using the average exchange rate during June. Over the month, the k averaged almost 64.4p, 6% above its June 2001 value. As a result, an English grower will receive a gross payment of about £239/ha (£97/acre) for cereals and set-aside.

But the government will reduce, or modulate, payments by 3% this year to help fund a range of environmental schemes (up from 2.5% in 2001) and regional over-planting penalties are also likely to be triggered. How much the latter will affect payments will not be known until the autumn, when all IACS areas have been calculated. But using historical data, a scaleback of 2% is realistic for England, says Richard King, of farm business consultant Andersons.

Deducting that level of scaleback, and modulation, produces a final figure for cereals and set-aside of just over £227/ha (£92/acre).

"This is a pretty firm figure to use for budgeting purposes," says Mr King. "Even if the scaleback figure changes by 1%, it will only change the payment by a couple of £s/ha.

"We will still end up with a better figure than last year, and slightly better than we thought three months ago. The average monthly exchange rate for April, when k1 was worth 61.4p, would have meant farmers receiving about £11/ha less for cereals than they will do."

For the first time since arable payments were introduced, oilseeds and linseed payments will match cereals, following the phased reduction introduced as part of the Agenda 2000 reforms.

But protein crops continue to attract higher aid, and English growers can expect a payment of about £261/ha (£106/acre) after modulation and scaleback.

Growers in other regions will receive slightly less for all crops due to lower yield bases. Lowland growers in Scotland will receive a net payment of about £212/ha (£86/acre) for cereals, set-aside and oilseeds (assuming a 5% scaleback).

Their counterparts in Wales and Northern Ireland will get about £203.50/ha (£82/acre) and £205.50/ha (£83/acre), respectively, assuming no scaleback.

It seems unlikely that higher set-aside payments could lead to an upturn in land rent values, says Mr King. "Farm Business Tenancy rates have been influenced by set-aside payments in the past by helping to put a floor in the market.

"While the new figure may be a cause for some tougher negotiation in the short-term, it is only represents a fairly small rise. Looking ahead, I think market forces will continue to drive down rental values."

lFor full details of estimated payments, see p31. &#42

Cereal, set-aside and protein aid payments are set to rise this year, putting £40m back into arable farmers pockets.