The recent strengthening of Sterling against the Euro has served to significantly reduce the size of Single Farm Payment (SFP) that will be paid out to farmers in Northern Ireland for 2014.
“This specifically applies to those producers who draw down their SFP in Sterling,” added Ulster Bank’s senior agricultural manager Cormac McKervey.
“When exchange rates and modulation factors are taken into consideration, farmers may well be looking at a 9% year-on-year reduction in payments.”
Cormac was speaking to Farming Life prior to the determination of the SFP exchange rate, which is traditionally adopted by the European Commission at the close of business on September 30th each year.
“I am estimating an exchange rate for the 2014 payments of around 78 pence. The equivalent figure last year was 83.6 pence. The exchange rate used in 2012 was 79.8 pence,” he confirmed.
Yesterday, Agriculture Minister Michelle O’Neill confirmed that Sterling payments for the 2014 Single Farm Payment will be made using the exchange rate of €1 = £0.77730. On the basis of the new rate, it is estimated that the total net value of 2014 SFP to local farmers would be in the region of £240.5million compared to £265.6million for 2013. This budget figure includes the impact of entitlement scaleback and the application of financial discipline in 2014. The exchange rate accounts for £18.2million of the £25million reduction from 2013 to 2014.
Single Farm Payments are set in Euro and converted to sterling each year using the exchange rate calculated in accordance with the EU regulations. For 2014 scheme year the rate is the market rate according to the European Central Bank on 30 September 2014. As a result of the CAP Reform agreement, from 2015 scheme year onwards, the exchange rate for direct payments will be calculated using the average market rate during the month of September.
Noting the exchange rate, the Minister said: “This year’s exchange rate is less favourable than last year’s rate and is disappointing news for local farm businesses as it will reduce the amount of Single Farm Payment received. Single Farm Payment remains an important element of farm incomes and I remain committed to ensuring that payments are issued to local farmers as early as possible.”
Under EU regulations the Department is permitted to commence processing full payments in December 2014. The Department has already committed to finalising 93% of SFP claims in December 2014.
Meanwhile, Mr McKervey has said that in more general terms the recent currency movements mean that food exports from the UK to the Eurozone are becoming more expensive while food imports into the UK are proportionately cheaper. “The most obvious example of this is the fact that beef exports from the Republic of Ireland on to the British market are more price competitive than are supplies from Northern Ireland at the present time.
“A stronger pound sterling traditionally results in an easing of feed prices. However, the reality is that global cereal markets have weakened considerably of their own accord over recent months on the back of the excellent harvests enjoyed in most of the world’s grain growing areas.”
Commenting on the current economic state of state of agriculture in Northern Ireland, the Ulster Bank representative confirmed that dairy, pig and poultry producers had enjoyed a period of sustainable returns over the past twelve months. “The edge has been taken off this somewhat with the recent fall in milk prices,” he added.
“The last year has seen beef producers confronting the challenge of significantly reduced returns, created by a lack of demand for beef on the British market. There are signs that the supermarkets are seeking to actively promote beef over the coming months.
“This factor, combined with the fact that finished cattle numbers will peak this autumn, gives a degree of optimism regarding the future trend in beef returns. But it’s still far too early to predict with any certainty how markets will actually perform into 2015.”
He concluded: “The other issue that must be factored into farmers’ financial planning over the coming months is the significant income tax payments that many will have to make at the end of January next year. This is a direct reflection of the profits that were generated in 2013.”
(Source – Farming Life – Richard Halleron – 01/10/2014)