Volatile commodity prices and their effects on farm incomes are regularly commented on but the current exchange rate fluctuations are also playing their part.

For many farmers in the UK the main subsidy available, the Basic Payment Scheme (BPS), makes up a considerable proportion of their income and changes in the exchange rate between pounds and euros can have a significant effect on receipts.

BPS payments for the UK are set in euros by the EU and then converted into pounds in September. However, the February 2016 average pound-to-euro exchange rate, for example, was some 6 per cent higher than the rate set in September 2015.

Therefore larger claimants might want to consider taking payment in euros and hedging the currency (sell forwards), either in full or in smaller amounts throughout the year. This is no different to selling grain forward to take advantage of price spikes and reducing risk.

Given the current exchange fluctuations, partly caused by the EU referendum, claimants could reduce their exposure by hedging a proportion before the referendum in June rather than accepting the rate set in September.

To claim in euros the claimant must select to take the currency on the BPS claim form and notify the Rural Payments Agency of their euro bank account details. However, it should be noted that though this practice can be viewed as a risk management tool, it is important that independent financial advice is sought before making any decisions.

Further information

Contact Savills Rural services