EMUs threat to cereal aid

6 March 1998

EMUs threat to cereal aid

CEREAL farmers could see aid payments plummet when the first stage of European Monetary Union begins on Jan 1, 1999, warns the HGCA.

Subsidies, fixed in euros, will still need to be converted into national currencies for the UK (and the three other expected "out" countries).

But the "freeze" rule, which currently boosts the conversion rate for direct payments by 11.5% in strong currency countries like the UK, could be scrapped. If todays exchange rates prevailed at the beginning of 1999, farmers area aid index would then be 82 compared with the current 100.

Sion Roberts, NFU economist, describes the freeze rule as "the number one agrimonetary issue". It is, he says, worth £400m to UK farmers in 1997 and 1998. Predictions for 1999 suggest an abolition of the rule – together with strengthening of the euro and disappearance of the positive gap – could remove £290m.

According to the HGCA, a new agrimonetary system will be sought which is low cost, as uncomplicated as possible and minimises trade distortions. So reference periods for changing green rates may be shortened and a smaller gap between green and market rates may trigger changes.

At first the £ will be more volatile against the euro than the ecu, prompting more frequent changes to rates and support prices.

Longer term, however, there should be more stability. A strong euro could result from the removal of currency transaction costs and stronger investment in the low inflation, low interest rate climate. And the £ could weaken, benefiting UK farmers. &#42

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