Exchange rate fluctuations are the biggest driver of UK farm incomes and the agriculture sector must be prepared for a strengthening of sterling in future years.
The pound’s weakness against the euro had benefited the farming sector, but as the eurozone problems continued, there was a chance we could see a relative strengthening in coming months, HSBC’s head of agriculture Allan Wilkinson told the AHDB Outlook conference in London.
“Our current forecast is for the euro to be worth around 89p, but who knows, in the next two to three years, we could see it nearer 80p or stronger than that. The longer the eurozone crisis goes on, the greater the chances of a weaker euro, and by definition we expect to see a strengthening of sterling.
“The sector needs to ask itself how it would be placed if this happens, whether that’s the impact on single farm payment or exports.”
Sterling’s weakness had helped exports, and for the first time, last year the UK exported more to the BRIC countries (Brazil, Russia, India, China) than to Ireland, he noted. “The base of power in world economies is moving east and we think India will be the largest economy by 2050, followed by China and the US.”
While the UK economy was officially in recession after the longest downturn in a century, he said there were signs of optimism, with the PMI index – which measures the willingness of businesses to trade – showing greater stability than GDP figures.