Euro slide prompts farm budget warning

By Robert Harris

FARMERS are being advised to rework their budgets as the Euro continues its dramatic slide against the Pound, with arable area payments, cereal prices and milk values bearing the brunt of the downturn.

The currency slumped to an all-time low against Sterling on Wednesday.

The European Central Bank reference rate, used to calculate a range of Euro-based subsidies, valued Euro1 at 58.27p.

That is almost 20% below its post-launch peak.

For growers, the timing is critical. Arable area payments will be fixed in Sterling according to the average exchange rate between the two currencies during June.

“For every 1p the Euro falls, it knocks 3.38/ha off the cereals area payment in England, and only slightly less in other regions,” says Richard King of farm business consultant Andersons.

He is now advising clients to use Euro1=60p to calculate area aid, rather than 62p used through most of this year.

That puts English cereals payments at about 203/ha (82/acre) assuming a 2% scaleback for over-planting, a fall of 7/ha (2.83/acre) compared with the 62p rate.

Set-aside, proteins and oilseed payments will fall slightly more.

A second tranche of agrimoney compensation to cover the ending of the green rate freeze last year will add a further 11/ha, he notes.

But English cereal growers will still be a massive 25/ha (10/acre) worse off than last year.

Scottish lowland growers will also be hard hit, getting about 190/ha (77/acre), assuming a 4.6% scaleback, and Welsh and Northern Irish growers will get even less.

In theory, compensation is available from Brussels to offset the effect of Sterling.

Farmers leaders will be lobbying hard, but, judging by the governments recent lack of interest in claiming arable monies, growers should not bank on it, says Siôn Roberts, chief economist at the NFU.

Cereals markets will also be affected if the Euro remains weak, since UK grain has to trade at a discount to French.

“New crop prices, already about 6/t down on last years levels, are likely to be affected,” says Mr Roberts.

Milk producers may also feel the pinch, as many contracts are linked to intervention prices. And, with exports harder to achieve and imports become increasingly attractive, markets across all sectors will be affected to some extent, he adds.

Signs suggest the Euro may struggle for some time.

“Although European growth is likely to be 3% this year, in the USA it will be higher. The Pound, as ever, is tracking the Dollar.”

Dennis Turner, HSBC chief economist, says sentiment, as much as hard economic data, is coming into play, after a critical report from leading German financial experts.

“People are starting to look at some key structural issues, and saying that one size does not fit all,” says Mr Turner.

“Ireland now has 5% inflation and an interest rate of just 3.5%. In other eurozone countries unemployment is on the up; they need lower interest rates.”

Expectation of further interest rate rises in the UK, which would attract more investment in Sterling, is adding to the pressure.

Official data last week showed consumer demand rising strongly, bank lending at record levels and mortgage loans increasing.

See more