MILK QUOTA values are being distorted by the mid-term review, forcing English farmers to pay over the odds, says one consultant.

The amount of quota held on Mar 31, 2005, will be used as part of the calculation to determine the dairy premium portion of the SFP.

But it will be worth less to English milk producers because the historic element of their SFPs will be phased out by 2012 and replaced with a flat-rate regional payment.

But Scotland and Wales have opted to pay SFPs on a historic basis for the foreseeable future, meaning quota has more value in those countries.

This has encouraged some farmers to speculate and buy in quota to try to boost their SFPs.

John Allen of Kite Consulting said the net present value of quota for an English farmer before financing costs and after inflation was only 5.54p/litre, while for those in Scotland and Wales it was worth 15.33p/litre.

Leased quota is currently making almost 9p/litre, while purchased quota costs about 15.2p/litre.

Mr Allen said that because milk output was down this year and quota unlikely to be exceeded, the logical leasing value was only 1-2p/litre and purchase 10p/litre.

A DEFRA spokeswoman said: “Although the value of quota in England is now higher than it would otherwise, or will be, after Mar 31, 2005, changing the rules would disadvantage dairy farmers who have quota they wish to sell or lease.

“We have been monitoring the situation and can find no evidence that the scale of any movement is sufficient to justify action,” she added.