Exchange rates could yet spring unpleasant shock

While the effects of different Brexit outcomes have been widely modelled by farming advisory bodies, it was highlighted this week that while exchange rate swings had been excluded from the various sectoral analysis, they would continue to play a key role in the industry’s future fortunes.

The issue came under the spotlight at Thursday night’s Brexit road show in Stirling, organised jointly by Quality Meat Scotland (QMS), Scotland’s Rural College (SRUC) and the Agricultural and Horticultural Development Board (AHDB) – when industry elder statesman John Cameron asked why this crucial factor had been omitted from the calculations.

In response, the AHDB’S senior insight analyst, Sarah Baker, said it had been left out because exchange rate variance was “omnipresent” in the farming sector – and had always played a role.

“So in order to look at a manageable number of variables under the different scenarios, it was left out of the equation.” she said.

However SRUC senior consultant Julian Bell said that changes in the value of Sterling were currently operating “as a hedge against political chaos”.

“In fact the currency situation could be looked upon as a barometer of how the Brexit negotiations are going at any given time,” he said. “Whenever the UK says or does something wrong the pound weakens – but if negotiations show some signs that they might actually be progressing it strengthens again.”

He said the huge drop in the value of the pound after the referendum had resulted in a significant boost to sterling prices for UK farmers – and had also boosted the sterling value of their support payments.

But a warning was issued by SRUC economist Steve Thomson, who said there was a risk that exchange rate movements could lead to a disappointment in the levels of support promised by the UK government up to 2022. “While farmers have been promised that the overall pot of support will ‘remain largely the same’ through to the end of the current government, no actual figure has been put on what this will be,” he said.

“Given that the payments are set in euros rather than pounds, if the exchange rate from the beginning of the multiannual financial framework for 2014-20 was used to set the figure then we could be looking at support payments 20 per cent lower in sterling terms than those currently being received,” he warned.