An ill-timed recovery in the value of sterling is jeopardising what was promising to be another windfall year for UK farmers receiving the Basic Payment Scheme in 2017-18.
The pound has surged against the euro since last week as expectations of an interest rate rise have mounted on the financial markets.
But as the value of 2017 BPS entitlements are converted from euro to sterling based on the average exchange rate for the whole of September, the latest currency movements have come at just the wrong time from farmers’ point of view.
Prior to hints by the Bank of England on 14 September that interest rates may finally start rising again before the end of the year, the euro exchange rate stood at about £0.92 to €1.
This would have made UK payments under the 2017 BPS roughly 8% higher than the equivalent values in 2016.
But the pound has now risen to closer to £0.88 to €1, taking the average rate for the month so far down to just over £0.90 to €1.
Further sterling appreciation between now and 30 September would bring the conversion rate down even lower.
Payments under the 2016 BPS scheme were already boosted by a “Brexit bonus” of some 14% as sterling collapsed in the aftermath of the June referendum result. At present rates, there will be further gains this year.
A farmer with total BPS entitlements of €30,000 would have received £21,938 in 2015, £25,566 in 2016 and a projected £27,152 in 2017 – a jump of 23.8% in two years.
Currency-induced gyration in aid payment rates have been a fact of life for British farmers under the CAP, but these will finally end after Brexit, as rates of aid under the new UK agriculture policy will be set in sterling.