Eurozone woes make sterling efforts important

It is estimated that around a fifth of Scottish farmers opt to have their single farm payment (SFP) paid in euros but this accounts for 45-50 per cent of the £450 million paid out to farmers every year.

Payment of this year’s SFP started on 1 December and the Scottish Government aim to pay out 75 per cent - totalling £335m – by Thursday of this week.

“We are certainly finding that more farmers are opting to switch their payment to sterling immediately at the current rate of 85p to the euro if they haven’t hedged by locking in earlier to a higher rate,” the bank’s senior agri-business partner in Scotland, Iain Clark, told an Edinburgh press conference.

“It is the farmer’s choice when he locks in. It is part of the farmer’s risk management strategy in the same way as he may take a forward view on prices when selling wheat or buying feed.”

But there is uncertainty as to how the value of euros held in bank accounts will be determined in the unlikely – but not impossible – event of a total eurozone collapse.

There were no answers forthcoming at yesterday’s press conference except to say that some other form of currency would have to replace the euro.

The bank’s head of agriculture, James O’Mahony, said Clydesdale would work closely with customers to minimise the risk.

“It is difficult to predict the outlook for the euro with any degree of accuracy,” he said. “We don’t know what the outcome will be,” he said.

On a more positive note, O’Mahony was bullish about the outlook for Scottish farming, given the current high prices for most farm products. The bank was committed to lending more to farmers in 2012, as it had done over the past year.

“Total lending to Scottish farmers is up 4 per cent this year and the Clydesdale’s share has increased by more than that,” he said.

“Farming is more upbeat than downbeat. The sector continues to attract additional funding and to justify more confidence compared with many other sectors of industry.”

He admitted that money supply will be tight in 2012 for all businesses and there was a clear “disconnect” with banks being pressurised by the government to rebuild cash reserves while at the same time increasing lending to business.

But he added: “Agriculture is better placed than most to secure necessary funding and that is a definite plus in the face of tight money supplies.”

Clark said much of the bank’s increased lending was for working capital required to finance higher input costs, particularly fuel and fertilisers.

But there had also been considerable investment in capital projects which had been helped by grants available under the Scotland Rural Development Scheme (SRDP).

“The Scottish Government has now placed a cap on grants for individual projects under the SRDP so we are likely to see a slow-down in investment next year,” he said.

Lending by the UK banking division of the National Australia Bank – which comprises the Clydesdale and Yorkshire banks – totalled £7.5 billion in the year to 30 September and profitability increased by 4.3 per cent to £533m. The bank has not required government support throughout the banking crisis.