Government ignores aid to counter strong £ effect

10 December 1999

Government ignores aid to counter strong £ effect

By Robert Harris

HUNDREDS of millions of £ of compensation which could help farmers cope with this years stronger sterling may never be paid.

The government has already ignored about £230m of aid triggered by the strong £ in 1997 and 1998, and is unlikely to treat the new money any differently, say experts.

Livestock farmers face sharp cuts in headage payments next year as the k continues to sink against the £. After a recent change to the rules, k-based livestock subsidies are now converted into sterling using the average exchange rate for December.

But the k started the month at an all-time low against the £, and has continued to fall since, starting the week at just 62.5p.

"Currency markets can be very volatile pre-Christmas," says NFU economist Peter King. "There is less trading taking place, so small trades can have an exaggerated impact on prices." Given the recent downward trend, and the fact that there are fewer trading days in December, he believes the k is unlikely to recover much during the month.

So, while other countries enjoy an k18 rise in suckler cow premium and a k13 rise in beef special premium next year under Agenda 2000, UK producers will be worse off (see table). Extensification and slaughter premiums are also affected.

But there is a mechanism to compensate direct payments for strong currencies, known as appreciable revaluation compensation. Assuming the k averages 63p during December, beef and sheep headage payments could attract compensation, worth £300m for UK farming, says Mr King.

In theory this would be paid out over three years, co-funded by Brussels and the UK Treasury. Farmers could receive £150m next year, a further £100m in 2001 and the remaining £50m the following year.

But the government has to apply for this money, and is under no obligation to ask for it. Due to the Fontainbleau agreement, the UK would actually end up paying most of the bill.

Further market support measures for cereal, beef and dairy sectors are also available, and could be worth over £100m paid over three years, based on a 4.1% revaluation during 1999, says Francis Mordaunt of farm business consultants Andersons. "The dairy sector alone would be eligible for about £25m in the first year, about £1000 for the average producer."

Unfortunately, the UK must pledge its own share of aid in this sector before Brussels matches it. And, due to Fontainbleau, the UK would have to fund about 85% of the bill.

Scottish farm minister, Ross Finnie, told producers at last weeks DairyScot event in Edinburgh that he did not want to hold out any false hopes. "I do not want anyone thinking that the Treasury is looking favourably at this at the moment."

That comment, and the governments past performance, suggests farmers banking on the cash are likely to be disappointed. "The effect of the strong £ on agriculture is now dire," says Mr Mordaunt. "But the government could quite legitimately help the industry." &#42

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