EU funding ‘quirk’ could cut funds

A QUIRK in European Union funding could mean Scottish farm support could be reduced by up to £50 million this year – because the 2013 single farm payments (SFP) are actually drawn down from the 2014 EU budget.

And 2014, as Richard King of Andersons business consultants pointed out this week, comes under the reduced budget for the period from 2014 to 2020 agreed by European Prime Ministers last month.

Speaking in Perth, King advised farmers to be prudent in their forward planning and allow for a reduction up to 10 per cent in their SFP in their cash flows. He admitted the budget might be fudged to get round the problem but advised that it was better to get a bonus in the cash flow rather than a gap.

Another aspect of this potential problem was highlighted by his colleague, David Siddle, who advised those who hedged forward on currency in order to maximise their SFP, to factor in the potential fall in income rather than overcommit.

Earlier King had pointed out the strong link between profitability of UK agriculture and movements in currency valuations. “Basically, the weaker the pound is against the euro, the higher the profit in farming in this country,” he said. “Analysis shows that 85 per cent of any change in the total income from farming can be explained by movements in the exchange rate.”

Although agriculture has been traditionally an industry noted for low profitability, the balance sheet has unrivalled strength, with the value of land far outweighing any liabilities.

King estimated that the current indebtedness of the industry was only about 6 per cent of the asset value and no other sector had such a positive balance sheet.

However, he dismissed any idea that 2012 was a one-off case of bad weather affecting returns, predicting that the effects of last year would deeply affect returns this year.

Although SFPs received in the past three months had temporarily eased the financial pain, poor crop establishment, higher feed costs and tax bills having to be paid from a more profitable 2011 had all contributed to depleted cash reserves at the current time, he said.

On the possibility of the UK leaving the EU, he said it would be unlikely that agriculture would benefit from such a move. “Apart from trade implications, where the UK exported £159 billion worth of goods in 2011, any UK farm policy is unlikely to be as generous in monetary terms as current support under CAP,” he said.

The only qualification to that would be a support programme specifically tailored to UK farm needs rather than the CAP.