Green £ revaluation hits livestock and arable aid

8 May 1998

Green £ revaluation hits livestock and arable aid

THIS weeks green £ revaluation has wiped an estimated £400m off farm incomes across the UK. Although the £ dropped 5.6 pfennigs against the deutschmark over the weekend, the weakening came too late to prevent the rejig.

The green £, which is used to convert EU agricultural payments from ecus to sterling, has been cut by 2.7%. As a result, 1ecu is now worth 67.74p, reducing a range of livestock and arable support, including:

&#8226 A £2.21 cut in the November intervention price to £81.41/t.

&#8226 A 0.56p/litre fall in the intervention milk price equivalent.

&#8226 A reduction of about 1.5p/kg for OTMS cattle.

Arable farmers face a bigger cut. Area aid payments will fall just over 6% from Jul 1, since this seasons values were set before last Augusts revaluation of 3.6%.

Cereal area aid in England is now worth £241.72/ha, down from £257.24/ha. The Home-Grown Cereals Authority puts oilseed area aid at just over £297/ha, almost £80/ha lower this season, due to the extra cuts caused by an estimated 15% overshoot in base area and high European prices.

However, analysts expect sterling to weaken gradually over the next 12-24 months, believing UK interest rates to have peaked and doubts over monetary union to be fading after last weekends launch.

The NFU maintains that the government should apply for Brussels money to compensate farmers for the effects of the strong £. Longer term, a weaker, stable £ is needed, says the unions chief economist Sion Roberts.

A convergence of interest rates over the next 12-18 months will help, he adds. The UKs 7.25% base rate is about twice that in Europe, making the £ attractive to investors. "A bigger problem is the instability caused by exchange rates. The sooner we enter a single currency at a sustainable rate, the better it will be for farmers."

Norman Coward, Midland Banks head of agriculture, also expects sterling to weaken gradually. But he predicts a volatile passage, with money markets nervous in the run up to European monetary union on Jan 1 next year.

However, the £ could drop to 2.80DM by the end of the year, he believes. That would trigger a devaluation and boost Brussels payments to farmers.

John Page, Barclays head of agriculture, suggests the £ will be worth 2.75DM at that time. "That is nearer its true value. But it is too early to get carried away by any euphoria." &#42

See more