Income may rise under Agenda 2000, but £ must weaken first

2 October 1998

Income may rise under Agenda 2000, but £ must weaken first

AGENDA 2000 proposals could mean an extra £20,000 in direct aid payments for one West Yorks milk producer, but that may not be reflected in total farm income because milk price might fall.

Andersons research consultant Francis Mordaunt predicted the rise in aid payments for producer Nick Abbott at the event using a computer program developed to calculate direct aid paid to compensate for lower prices post-Agenda 2000.

Mr Abbott farms 80ha (200 acres) at Old Hall Farm, Huddersfield. He has 130 dairy cows which average 6000 litres, 100 youngstock and 25 beef steers. He grows 16ha (40 acres) of wheat and 4ha (10 acres) of beans. Under existing CAP rules, Mr Abbot receives about £6500 in direct aid payments.

But according to Andersons computer prediction that will increase to £26,400.

Arable aid payments will rise little, but livestock aid will amount to £20,700, said Mr Mordaunt. Payments will be made on a virtual cow producing 5631 litres. In reality, that means payments are based on the total litres produced, starting at about 0.4p/litre in 2000, and possibly increasing to 2.36p in 2003. The litreage used for calculating payments is quota owned and leased in at each quota year end.

But he said that despite increased subsidy, the milk price Mr Abbott receives will most likely be lower, as will cereal prices. However, milk quota will still control production and influence price when Agenda 2000 payments are phased in.

The actual milk price received will depend on how the UK price is affected by the 15% milk price fall proposed by the EU, and how much of that fall is passed on to producers by their milk buyers.

For example, when a euro is worth 75p – 9% more than the current value – and 60% of the 15% milk price cut is passed on to producers and milk is still worth 19p a litre, aid payments may increase farm income by 2.36p/litre.

But milk prices may fall, buyers may pass on all the EU price reduction, and the £ may not weaken, cancelling out any potential increase in income.

"On average producers should be better off under Agenda 2000 proposals, if the £ weakens enough."

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