Aid caps big implications
Aid caps big implications
By Philip Clarke
CAPPING area aid on farms above a certain size is likely to be one of the most hotly debated subjects as Agenda 2000 unfolds.
Farmers thinking of expanding should consider the implications now.
Speaking at the first of a series of farmer meetings on CAP reform organised by Bidwells in Norfolk this week, consultant Charles Course said rumours pointed to a limit of about £160,000 of aid for any one farm business.
This was in line with the amount allowed under the US Farm Bill and would potentially hit farms above 570ha (1400 acres). While that represented less than 3% of all farm businesses, it would affect a significantly larger proportion of the UKs farmed area and would have dire implications for employed labour.
As yet, it was unclear whether capping, or modulation, would be part of the final agreement. "We are not advising clients to put arrangements in place purely to pre-empt the loss of support payments for larger businesses," said Mr Course. "This threat should not be allowed to over-influence commercial business discussions.
"But the risk should be borne in mind when taking any additional land. If this can be structured in such a way that support payments can be claimed in the name of another small farm business, this is clearly preferable."
Smaller businesses unable to achieve economies of scale can still benefit from area aid, and remain in business, if the land is farmed by a contractor under a farm manage- ment agreement, but not if the land is let out. Land bought or rented for genuine commercial reasons should not be penalised, he added.
As for the other implications of Agenda 2000, Bidwells predicted a big shift in cropping patterns, as Brussels seeks to introduce a single area aid payment for all crops (other than pulses and linseed).
The proposals call for a 20% cut in intervention prices to £69/t, a 10% rise in area aid to £280/ha (£113/acre) with a £28/ha (£11/acre) protein crop supplement and an end to compulsory set-aside.
Assuming constant yields and prices, with variable costs rising in line with inflation and new area aids based on current green rates, Mr Course estimated that wheat gross margins would rise from £730/ha (£295/acre) in 1997 to £790/ha (£320/acre) in 2000. But oilseed rape and peas would be penalised by the new arrangement, falling from £720/ha (£291/acre) and £620/ha (£251/acre), respectively, to £625/ha (£253/acre) and £500/ha (£202/acre).
"We are likely to see a dramatic increase in the cereal area at the expense of oilseeds and, to a lesser extent, pulses," he predicted.
Consultant Simon Ward agreed that "wall to wall wheat" was the most likely outcome of the proposal, especially if the small premium in area aid for pulses was ruled out in the course of negotiation. This could more than double the UKs export surplus to about 9m tonnes.
With about 100m tonnes of wheat traded worldwide each year, the UK alone would have an effect on grain prices, which would fall in the short term. Initially, the intervention value of £69/t – or £63/t ex-farm – would be the likely price until markets had time to adjust to the bigger wheat surplus.
But longer term, the prospects were for world prices to climb as export subsidies diminished and intervention would become an "occasional floor" rather than "the going rate". *
Simon Ward… Believes wheat prices will slump to start with before reovering.
Charles Course… Modulation will be the most hotly debated aspect of Agenda 2000, and also one of the most dangerous.