Euro trade brings cereal price uncertainty

Tuesday, 12 January, 1999

By FWi Staff

UK cereal farmers are entering a volatile economic period as Euro trading settles
down, claims the Home-Grown Cereals Authority.

After just 11 days of Euro trading, HGCA economists say that UK farmers are
already having to absorb the impact of fluctuating exchange rates on intervention
prices, and have stressed that there are no quick fixes ahead.

UK intervention payments have to be converted to sterling, exposing farmers
to a currency risk which can vary considerably, said HGCA economist Gerald
Mason.

For example, if the current Euro system was in place in November and December
last year, intervention prices would have ranged considerably from £83.30-£85.75/t
— a difference of £2.45/t, said Mr Mason.

The Commissions decision to use the date prior to delivery as the date on which
the exchange rate would apply further increases any risk.

For many farmers it can be a matter of weeks between offering and delivery — and
that means more time for exchange rates to fluctuate, he said.

The Euros impact on area aid payments (AAPS) also needs to be assessed longer
term, particularly as about a third of the average UK cereal farmers income is
based on AAPS.

Although UK farmers will receive compensation over the next three years to
offset currency reform, it is not yet clear exactly how the compensation system
will work — or how Agenda 2000 reforms will impact on future payments, said
Mr Mason.

There has also been concern regarding the low interest Euro loans on offer.

It makes little sense for farmers to borrow in Euros unless they can be sure of a
guaranteed Euro income stream, said Mr Mason.

And that cant realistically happen until UK farmers are paid in Euros, which
the Agricultural minister has indicated will take place in Autumn 2000.

Farmers should consider all the options very carefully, urged Mr Mason.