9 April 1999

OSRarea aid cuts will be deeper than expected

By Philip Clarke

DEEPER than expected cuts in oilseed area aid are in the pipeline, after the publication this week of the first legal texts on Agenda 2000.

The documents, which still have to go to the European parliament and council for ratification, add important details to the outline agreement reached by EU heads of state at their recent Berlin summit.

They confirm that oilseed payments will drop in three equal stages until they match cereal aid in 2002/03. But this is now put at k63/t (£42/t), instead of the k66/t (£44/t) agreed by farm ministers a month ago. At current exchange rates this would pay just £249/ha to English growers and £239/ha in the Scottish lowlands.

But the greater concern is what happens to oilseed payments in the next two years. Farm ministers originally said support would not drop below k66/t (£44/t) throughout the reform period, a move welcomed by UK farming unions who have seen aid cheques cut by Blair House penalties for over-planting.

But the new document specifies that oilseed area aid may not fall below the cereal rate, in other words k58.67/t (£39.3/t) in 2000/01 and k63/t (£42/t) in 2001/02 (see table). Only when oilseed and cereal aid rates are equalised in 2002/03 will the Blair House penalties vanish altogether.

"This makes it much more difficult for oilseed producers," says NFU arable adviser, Jonathan Pettit. "It is good there still is a floor, given the extent of our current penalties. But it is much less supportive than we had hoped for."

But despite the disappointment, the Home Grown Cereals Authority remains bullish about oilseeds. Apart from the agronomic benefits as a break crop, gross margin analysis shows that oilseed rape could actually outperform wheat, depending on market price movements.

"If wheat prices remain unchanged at this seasons average of £71/t in 2000/01, then rapeseed would only need to average £130/t to compete under the first year of Agenda 2000," says HGCA economist, Peter King.

The HGCA also estimates that in the second year of reform, with wheat earning £69/t and rapeseed £130/t, and with both getting the same area aid, oilseeds should be making a higher gross margin at £503/ha compared with £487/ha.

lThe legal texts also confirm the end of the reference price system, which cuts area aid when market prices are high. A further review of the oilseed market is also called for within two years, to assess the effect of reform. &#42

1999 2000 2001 2002

Cereals 54.34 58.67 63.00 63.00

Oilseeds** 94.24 81.74 72.37 63.00

Set-aside 68.83 58.67 63.00 63.00

Proteins 78.49 72.50 72.50 72.50

Linseed 105.10 88.26 75.63 63.00

*To convert to area aid, multiply by appropriate green rate, (estimated at 73p/k in 2000, 70p/k in 2001 and 67p/k in 2002), and by historic regional yield, (5.89t/ha in England, 5.67t/ha in Scotland non-LFA and 5.17t/ha in Wales non-LFA).

**Maximum rates. Blair House penalties will still apply in 2000 and 2001, though oilseed area aid may not drop below cereal levels.

Another outlet for milling wheat

FARMERS will have another outlet for their milling wheat at the end of this month after a deal between Tomkins, which owns Rank Hovis, and American-owned Archer-Daniels-Midland.

Tomkins has agreed to sell four of the six flour mills it acquired from Spillers just over a year ago to ADM, best known in the UK for its Erith oilseed crushing operation.

The sale of the mills at Avonmouth, Liverpool, Newcastle and Tilbury follows a recommendation resulting from a Monopolies and Mergers Commission investigation sparked by the Spillers deal. That acquisition gave Tomkins about 35% of the market, about 9% ahead of Allied Mills, according to estimates in the MMC report.

Tomkins will not disclose the transaction price, although it says the mills had net assets of £33m at the end of October. It adds that the £40m provision for the loss of these operations on disposal, announced in January, would be sufficient.

Traders welcome the move, which marks ADMs first entry into the UK milling market. "Having three rather than two main buyers has to be a good thing," said one.

"It is wonderful news, says another. "It brings another player who might have a different management style and buying strategy to the market. That can only be good news for farmers." &#42

1998 sheep claims

FINAL balancing payments of £5.57 a head in ewe premium and 8p a head less favoured area supplement are going out to sheep producers in respect of 1998 claims.

This takes the total support for last year to £16 for SAPS and £4.72 for LFA supplement.

A further £1.45 is expected to be paid later this month as part of the agrimoney compensation package agreed by farm ministers last December after the switch to market exchange rates. &#42


uLATEST acquisition by Wiseman Dairies is Kilmarnock-based retailer Gilmours Dairy Ltd. Wiseman has bought 80% of the shareholding with an option to secure the remaining 20% in October. The total deal is worth £3.45m. Gilmours supply 3% of the fresh milk market in Scotland and last year had a turn-over of £8.4m with a profit of £360,000.

uTHE pig crisis wiped £8m from returns to 90 producer members of Scottish co-op Grampian Pig Producers last year. The group handled almost 540,000 pigs worth £29.2m compared with £37m the previous year. Eight members were forced out of business and the group had a bad debt of £39,000. The co-op made a loss of £11,830. &#42

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