Arable proposals come through heated debate

19 March 1999

Arable proposals come through heated debate

WHEN EU farm commissioner Franz Fischler launched his detailed reform plans a year ago, everyone expected they would be substantially watered down before ministers would accept them.

While this may be true in the case of dairy reform, (which has been delayed) and beef reform (where price cuts are one-third lower), in the arable sector the original proposals have held together remarkably well.

There have certainly been concessions – the 20% price cut is being implemented in two steps rather than one and set-aside is being kept at 10% until 2002 instead of the 0% the commission was after.

There have also been some minor concessions to specific countries. For example, Italy and Spain are having their reference yields revised upwards, giving them more area aid. And Finland has won a k20/t (£13/t) area aid supplement to account for its higher drying costs.

This point was not lost on Scottish NFU president Jim Walker, in Brussels last week, who was quick to point out that Scottish growers do not have a particular cost advantage when it comes to putting their crops away.

But generally the commission will be well pleased with its achievement in the arable sector.

Its main fear was that, if current policies were left untouched, grain stocks could rocket to over 50m tonnes in the next five years.

Having set out to get EU prices down to world levels, so that it can trade without the use of export subsidies, it can rightly claim to have met its objectives. Indeed, market predictions suggest wheat prices need not fall by the full 20%, as world prices are likely to be above the £60/t ex-farm that would imply.

Currency movements may also help, says NFU chief economist, Sion Roberts. "Sterling is at about 2.90 against the German mark. In the medium term we reckon it could get down to 2.70. If this is so, it could make for about a 10% price rise for UK growers."

Another change to the commissions original proposal is to pay out area aid cheques from November instead of waiting until the new year.

The significance of this is stressed by NFU president, Ben Gill. "As we move forward into a scenario where marketing is more important, waiting until January for aid cheques would have put growers in a very weak selling position at harvest."

But he has continuing concerns about the oilseed sector, where reductions in area aid will undermine the attractiveness of the crop. Prices are already on the floor, thanks to large global supplies and the collapsing Brazilian currency, with little prospect of a recovery.

There is some respite for UK growers in that Brussels has inserted a clause in the deal which prevents oilseed aids from dropping below the cereal level of k66/t (£44/t). With the Blair House penalties (for over-planting) continuing until 2002, this will put an essential floor under UK area aid cheques for the next two seasons.

But looking at the predicted effects on gross margins across the range of crops, it is easy to be pessimistic.

"If there were no change in yields, world commodity prices or exchange rates, the reform would reduce gross margins for all the main combinable crops, with wheat being knocked the hardest," says Jim Ward of FPD Savills.

"In reality, we anticipate continuing growth in yields and costs, together with movement in world commodity and currency markets.

"Our expectation is that world cereal prices will rise from their current levels of $100/t to about $125-$130/t by 2002, which will limit the price fall to 5%, or £4/t." With similar improvements in some other markets, whole farm gross margins are expected to stay fairly static. (See graph.)

The crops likely to suffer the most are barley and linseed, says Mr Ward. "World barley prices are likely to provide less support and we expect less to be grown after this reform."

Linseed does especially badly. Originally it was intended to put the crop on the same area aid as proteins (k72.5/t), but the final agreement aligns them with cereals from 2002. This means aid will drop from about £467/ha in 1999 to £260/ha in 2002.

"It will produce a return barely more than set-aside and is unlikely to feature in many rotations after this years harvest." &#42

Calculating area aids is complicated because exchange rates will be inflated in 2000 and 2001 as part of last years agrimoney compensation package. Different reference yields also apply to different regions.

Reference yields: Assumed exchange rates

5.89t/ha for England Market rate 0.67

5.67t/ha for Scotland non-LFA Year 2000 0.73

5.17t/ha for Wales non-LFA Year 2001 0.70

Year 2002 0.67

Area aid £/ha

Harvest 2000 2001 2002

Cereals/set-aside (k60/t) (k66/t) (k66/t)

England 259 272 260

Scotland 248 262 251

Wales 226 239 229

*Oilseed rape (k83/t) (k74/t) (k66/t)

England 357 305 260

Scotland 344 294 251

Wales 313 268 229

Proteins (k72.5/t) (k72.5/t) (k72.5/t)

England 312 299 286

Scotland 300 288 275

Wales 274 262 251

* Full rate available. In reality, Blair House penalties will probably take oilseed payments down to the cereal rate in 2000 and 2001, (but no lower).

NB Current area aids are based on k54/t for cereals, k69/t for set-aside and k78.5/t for proteins.

&#8226 20% cut in grain intervention price – 10% in 2000 to k107/t (£72/t) and 10% in 2001 to k95/t (£64/t).

&#8226 Monthly increases in intervention abandoned, effectively knocking another k8/t (£5.36/t) off June values.

&#8226 Area aid increased from k54/t (£36/t) to k60/t (£40/t) in 2000 and k66/t (£44/t) in 2001.

&#8226 Cereal area aid for proteins set at k72.5/t (£49/t) from 2000.

&#8226 Area aid for oilseeds and linseed reduced in three equal stages until they reach the cereal rate of k66/t (£44/t).

&#8226 Reference price system for oilseeds (which reduces area aid if market prices exceeds a certain level) abolished.

&#8226 Set-aside retained at 10% for first two years of reform, then cut to zero.

&#8226 Set-aside payment fixed at cereal rate, instead of k68/t (£46/t) currently.

&#8226 Payment of area aid cheques between Nov 16 and Jan 31.

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