Euro fix now may ease BPS pain
Last year many farmers were caught out by not fixing their euro exchange rate for BPS. This year, with Brexit, it would seem that it may be time to review again.
Since the scheme began in 2005, exchange rates have varied widely with 2009 the more favourable year while last year the exchange rate was the lowest since 2007, as you can see below:
2015 €1 = £0.73129
2014 €1 = £0.77730
2013 €1 = £0.83605
2012 €1 = £0.79805
2011 €1 = £0.86665
2010 €1 = £0.85995
2009 €1 = £0.90930
2008 €1 = £0.79030
2007 €1 = £0.69680
2006 €1 = £0.67770
2005 €1 = £0.68195
While the exchange rate varies by its very nature, at the time of writing it is about 0.780723 £ per €. The exchange rate for BPS is fixed in September every year and last year the rate was £0.73129. If you fixed the rate at the value quoted now, it would mean an extra £0.04943 per € of claim.
If your claim this year is for 1,000 acre or 405 ha of land, at a rate of about €245 per ha, this would give a payment in Euros of around €99,225. At this article’s exchange rate, this would be a payment of £77,465. At last year’s exchange rate, the payment would be £72,562, a difference of £4,900. To fix a rate, a contract needs to be agreed with a bank to play the exchange rate market effectively. Your BPS still arrives from the government in Euro but the deal with the bank for a certain exchange rate on a certain amount of money could pay dividends. Most big banks offer such a scheme.
The above example shows a small benefit on 1,000 acres - generally only the big farmers tend to arrange an exchange rate fix. On a 4,000 acre farm, the benefit is £20,000 on the above figures. The bank will charge a fee for this service, again good reason why the arrangement needs to be for a bigger holding.
Ignoring Brexit, some farmers might consider it logical to fix the rate on at least some of their BPS claim money for this year now to mitigate their risk. Like selling grain forward, you may not get the best price but you may safeguard yourself against a possible big loss. When to fix the exchange rate is the question. Brexit is likely to have an impact, especially if the result is to leave the EU, so to manage the risk it may be worth considering options now. The figures above show that without Brexit the exchange rate can vary widely so it may be more important this year.
Christopher is part of the rural team, carrying out management and professional services for private clients in the Newbury area. He specialises in the management of rural countryside estate, providin...