Exchange rate shift reduces SFP

This year’s single farm payments throughout the UK are to be reduced, after the fixing of the exchange rate for converting aid cheques from euros to sterling at the end of September.

Farmers and growers already face subsidy cuts due to higher rates of EU and national modulation (see table). For example, in England the combined modulation rate will double to 10%. On top of this, all SFPs will drop by 0.7% as a result of the exchange rate shift.

Brussels uses the rate prevailing on the last working day of September, which, for the UK, gives a conversion for 2006 of 67.7p/euro. This compares with the 68.3p/euro used last year.

NFUchief economist, Carmen Suarez, said that, while the difference was small, she was still concerned that the EU Commission had chosen the rate applying on a single day – 29 September – rather than taking the average exchange rate for the whole month.

In fact, the currency markets had swung a bit in UK farmers’ favour as the month came to a close.

Had the commission used the September average, farmers would have got just 67.5p/euro for their 2006 SFPs.

“But the conversion rate could easily have been much worse had markets gone the other way,” said Ms Suarez. “We are still nervous about using just one day’s figures.”

Calculating the net impact for English growers is almost impossible. As well as the higher rate of modulation this year, the ratio of historic payment to flat-rate area payment has also shifted under DEFRA’s dynamic hybrid model.

But in Wales, where modulation is unchanged and SFPs are purely on a historic basis, a £10,000 SFP cheque in 2005 will fall to £9938 this year due to the currency effect.

Elsewhere in Europe, Czech farmers will get 4% less area payment due to the appreciation of the Czech Crown, while Hungarian farmers will be 10% better off due to the depreciation of the Forint.