THE rapid slide in the value of sterling against the euro over the past week represents many positives for the farming industry. For a start, exports of beef, lamb and pig meat are now increasingly competitive on the European market.
However, the most significant gain, according to David Douglas, the head of agriculture with the Clydesdale Bank, will revolve around the size of the single farm payment (SFP) cheques – the measure introduced in 2005 to replace a wide range of former
support measures. This payment is fixed in exchange terms on the rate between sterling and the euro on 30 September.
Douglas, speaking yesterday in Inverurie, explained: " I see no reason to suspect any great changes before the end of this month, I believe that most farmers will get a bigger SFP cheque that they anticipated. That has got to be good news."
The price of beef with prime cattle is realising around 30 per cent more than last September, but the fact remains that while the ex-farm price of many commodities has increased dramatically, input costs are also moving upwards.
Fertiliser is the most obvious: farmers traditionally take delivery during the autumn period and have been allowed a window of credit for several months. That is no longer the case with suppliers demanding payment within 28 days, or even less. This change of circumstance is putting a strain on the cash flows of many businesses.
The bankers are well aware of this, but Douglas is adamant that the requirements of the vast majority of farming clients are being addressed in a positive manner.
He said: "Looking at our own lending requirements, I can honestly say that we have not encountered any situation where we have been unable to meet cash flow requirements. I am not saying that it's always been easy, or that there are not cost implications attached to credit crunch. I am saying, however, that many businesses remain soundly based, are being well managed in difficult times and that Scotland's ability to produce quality livestock and crops therefore remains sound."
But banks are certainly not immune to the credit crunch and the fact is that most have to borrow money on the international wholesale markets to lend on to clients. Farmers, and the business community in general, are now hearing much more of Libor (London bank overnight rate). This is effectively the cost of money for the banks, and it is currently running at least 0.75 per cent above the Bank of England's base rate.
This means that additional borrowing is liable to cost considerably more than in the days when deals were agreed on a margin over base rate. Douglas advises farmers to consider all options, not the least of which is locking into a Libor rate for a period of years.
On the general prospects for the industry Douglas raised the question of sustainability of supply and the need to make a worthwhile profit in the face of rising costs.
He said: "One of the key anxieties of Scottish agriculture today is the maintenance of the country's livestock production levels. This is not an easy issue on which to comment. If it was, then it would already have been solved.
"I think everyone agrees on the end point we want to reach, indeed the end point which we must reach if Scottish agriculture is to retain its true and global livestock identity. A way must be found to counter continuing reductions in beef and sheep production capacity.
"That will only be achieved by the industry working together to create a solution which enables all parts of the food chain to remain viable."
The full article contains 617 words and appears in The Scotsman newspaper.
