Paul Connaughton
Ceist:121 Mr. Connaughton asked the Minister for Agriculture and Food the effects the introduction of the euro will have on Irish agriculture; and if he will make a statement on the matter. [12402/99]
Written Answers. - Euro Currency Implications.
The biggest single impact of the introduction of the euro on agriculture, as on other sectors in the economy, is the fall in interest rates which it has caused. Agriculture is a relatively highly indebted sector and has had a proportionately large gain from lower interest rates. Every 1 per cent drop in rates is worth about £20 million to the sector. As interest rates have already dropped by around 2 per cent due to EMU, this is worth up to £40 million per year to agriculture. This benefit is likely to be long term, as it is generally accepted that euro interest rates will continue to be lower than Irish rates would be outside of EMU. Interest payments now absorb around 10 per cent of farm income as opposed to almost 30 per cent in the early 1980s.
Substantial benefits will also arise for the agri-food sector due to the elimination of foreign exchange transaction costs and risks on exports to euro countries. This is particularly important as the development strategy for the sector is to maximise exports into these high price countries. The ten other euro countries currently account for nearly 30 per cent of agri-food exports.
Prior to 1 January 1999 institutional prices and direct payments under the Common Agricultural Policy were fixed in ecus. The ecus were converted into national currency by means of agricultural conversion rates, more commonly known as green rates. From 1 January 1999 institutional prices and direct payments have been denominated in euros and, as the conversion rates to the euro have been irrevocably fixed from that date, green rates have been abolished.
Accordingly, institutional prices have been reduced by 1.125 per cent but this decrease will not necessarily be reflected in market prices.
The green rates which applied to certain direct payments to farmers, that is, livestock premia, arable aid, farm retirement pensions, rural environment protection scheme payments and certain forestry payments, were frozen in 1995. These frozen green rates were due to lapse on the introduction of the euro. These direct payments, which amounted to an estimated £890 million in 1998, will now be made at the euro rate, which is 5.055 per cent lower than the frozen green rate. The agrimonetary arrangements for the introduction of the euro, which were agreed by the Council of Agriculture Ministers in December 1998 include compensation provisions, whereby gradually reducing compensation will be paid over the next three years.