Committee Reports > List of Committees > Joint > 1978 > Committee on the Secondary Legislation of the European Communities > Report No. 06 - Fixing of Representative Conversion Rates in Agriculture and Use of the European Unit of Account in Common Agricultural Policy

APPENDIX III

METHOD OF CHANGEOVER

The Commission considered three possible methods of changeover which would work out as follows on the basis of currency values in January, 1978:—

(i) A change on the basis of 1 EUA=UA. Existing green rates would continue to ensure that prices in national currencies remain unchanged. (Prices in national currencies would remain unchanged under (ii) and (iii) following also but green rates would have to be adjusted to so ensure). The common price level (i.e. the level towards which, with periodic green rate adjustments the Community is aligning) would be 17·4% lower than at present. The common level of prices expressed in EUA would be 8·4% lower than the weighted average of existing national prices. The distribution of MCAs would be radically changed. Most Member States would have positive MCAs (i.e. charges on import and subsidies on export) and the falls in the French, Italian and U.K. MCAs would be matched by rises in all other MCAs.

(ii) Changeover on the basis of 1 UA=1·21 EUA. This would leave the nominal level of common prices 21% higher but the real level unchanged (i.e. the rise in the nominal value of the EUA would offset the drop which would otherwise result from the fact that the value of the EUA is 17·4% less than that of the UA).

The common level of prices in EUA would be 11·9% higher than the weighted average of existing national prices. The distribution of MCAs would be virtually unchanged.

(iii) Changeover on the basis of 1 UA=1·091 EUA. The nominal value of the common price level would rise but the real value would fall by 9·8%. The common level of prices in EUA would be the same as the weighted average of existing national prices. The distribution of MCAs would be altered but not as radically as under (i).

The following table compares the MCA effects of the three options above with the level of MCAs applying on 16 January.

Under options (i) and (iii) as set out above the number and size of positive MCAs would increase. While this would have no immediate effect, it would make the eventual elimination of MCAs even more difficult than at present as adjustments of positive MCAs are the most painful for the Member States concerned since they result in decreases in producer prices. From the Irish point of view it would place us under pressure to phase out our MCA by price reductions (or lesser annual price increases) which in aggregate would amount to 14·4% under (i) and 6·6% under (iii). Under (ii) there would be no immediate change in the distribution of MCAs.

On the prices the main effect of options (i) and (ii) would be to reduce immediately the level of prices [by 17·4% under (i) and by 9·8% under (iii)] to which the Community is aligning. In the Irish case, under the present UA arrangements, the elimination of MCAs would lead to a modest rise in farm support prices (2% or so). Under an EUA system with a switchover on the lines of options (i) or (iii) the elimination of MCAs would lead to support price reductions of 14·4% (i) or 6·6% (iii). Under a changeover on the lines of (ii), there would be no immediate change in the real price level towards which prices are being aligned. Given the fact that all Community currencies are used in the calculation of the EUA, the long term price level even under (ii) would be lower than if expressed in UA based on the snake currencies only.