Currency change warning

19 October 2001

Currency change warning

By Alistair Driver

FARMERS have been warned it will be up to them to protect their incomes against currency fluctuations in the future.

Funds contributed by farmers and government could replace the agrimoney scheme as a means of compensating farmers when exchange rate swings affect subsidy payments, the NFU says. It also suggests some farmers could protect themselves by using risk management techniques, such as futures and options.

The agrimoney scheme is due to be abolished at the end of this year as the introduction of the k and the strength of the £ has rendered it useless to all member states except the UK. The NFU will lobby for its continuation but deputy president, Tim Bennett, admits it is unlikely to succeed.

UK farmers have received £783m under the system in the past five years, although they have been eligible for £2bn.

Mr Bennett has compiled a document, After Agrimoney – Options for British Farming, which outlines alternative strategies farmers must now look at.

One of these, a "government-supported income stabilisation scheme", could benefit all farmers, he claims. "Farmers would put money into a scheme which the government would match-fund. They can then call on that fund to smooth out troughs of currency volatility," Mr Bennett told an NFU council meeting in London.

The scheme is already being used in Canada and Australia and would be permitted under World Trade Organisation rules, he said.

NFU policy director Martin Haworth said the scheme could also be used to cover other risks, such as bad weather and disease. "The government has spoken favourably about a match-funded insurance scheme and is not against it in principle," he said.

But he warned the government is unlikely to agree to match-funding unless the money comes from other parts of the farm budget. He also admitted farmers struggling with low incomes will be unwilling to put money into the scheme.

The document says instruments that guard against exchange rate risk, such as options or futures, are not well understood by most farmers and would be more use to big arable agri-businesses. "They could, however, be useful for more farmers if they were channelled through a farmer co-op," Mr Haworth said.

Cereal farmers are still fighting for £57m of agrimoney that the government can apply for until the end of October. About 60 cereal farmers led by NFU president, Ben Gill, descended on Parliament on Oct 16 to press their case.

Mr Gill said the government had a duty to apply for the money. "The situation for UK arable farmers today is worse than at any time in living memory." The appreciation of the £ in recent years has cost UK farmers £84/ha in arable payments. &#42

Ben Gill (centre) says government has a duty to apply for agrimoney. Mr Gill is with NFU Scotlands David Houghton (centre left) and the NFUs Richard Butler.

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