Euro crisis will hit farmers’ EU payments

Fewer Scottish farmers will be taking their European support payments in euros this year, according to Jimmy McLean, head of agricultural services with the RBS Group, who said the prediction of only 10 to 15 per cent of potential euro recipients was based not only the views from within the bank but also from talking to other agricultural consultants.

There is still time for farmers to elect to get their subsidies paid in euros but McLean said, with the fluctuations in the currency market, the decision was much more difficult to make this year.

Of more direct interest to all farmers who will get their single farm payments from the beginning of December onwards was McLean’s prediction that this year’s subsidy would be based on an exchange rate of approximately 81p. At that level, payments will be 6-7 per cent less than they were 12 months ago and will be the lowest for the past four years.

Looking ahead to how he saw farming in the coming year, McLean, speaking at RBS Group headquarters in Edinburgh, said the prospects still remained good and that agriculture had a positive and sustainable future.

Admittedly, those in the sheep and dairy sectors faced more challenges this year, with the sheep industry and its high reliance on exports being particularly vulnerable to the value of the euro.

He attributed the recent fall in farm gate milk prices to a fall in dairy commodity prices last autumn brought about by increased supplies from the southern.

This was a classic example of how exposed farming was to fluctuations in world markets. In itself, volatility was not new and farmers were used to dealing with it. But it is the degree of volatility in the market nowadays which was presenting additional challenges.

However, the overriding message was that food production was now a high priority around the world.

After reporting that UK bank borrowings by the farming industry had increased by some 2.5 per cent in the past quarter, McLean said this showed banking was still very supportive of the industry.

His colleague James McCann, a specialist in economics, predicted that, for those borrowing money, bank interest rates would continue to be a very low levels. “We do not expect to see the central bank increase its rates until 2015,” he said. There may have to be more quantitative easing to help the economy as he pointed out that the country was already in recession and “nine out of ten pounds of planned spending cuts have still to be implemented”.