But Lloyds Bank said the amount of farmers choosing to receive their payments in euros has quadrupled
The 2016 exchange rate to be used for 2016 Basic Payment Scheme payments has been set at €1= £0.85228 - representing an increase of 16.5 per cent on the 2015 rate and the most favourable rate since 2011.
he reference rate used is an average of the European Central Bank exchange rates in September and will be used to calculate the BPS, greening and young farmer elements of the CAP direct payments regime.
However, Lloyds bank said the number of farmers choosing to minimise their exposure to possible currency losses this year by opting to receive their subsidy in euros has quadrupled.
The improved exchange rate will be welcomed especially in Wales and help cushion the blow for the many farmers who will see their support payments fall as part of the transition from the previous historic basis of support to the new flat-rate based BPS.
Farm incomes have been under immense pressure as a result of difficult market conditions over the past 18 months or so as highlighted by the forecasts for net farm income for all farm types for the year to March 2016 being down by 25 per cent to £13,000.
Andrew Naylor, Head of Lloyds Bank Agriculture, said he had seen a fourfold increase over the previous year in customers choosing to secure their exchange rate in advance.
“Whether this was down to depressed commodity markets or volatility following the EU referendum, we aren’t clear.
“It is likely that their motivation was to prioritise cashflow and build in certainty about exactly what payment would arrive in their bank account at the end of the year.”
"Farmers will see this favourable exchange rate as a help to their businesses in what has been a turbulent time for the industry with low commodity prices, particularly for Welsh dairy farmers in 2016," NFU Cymru president, Stephen James, said today (Monday, October 3).
"The weaker pound is positive news for BPS payments and for exporting produce like PGI Welsh Lamb – but it must be remembered that there is also a downside as it does make imports more expensive.
"This can have a negative impact on production costs, with inputs like fertiliser and machinery becoming more expensive as the pound depreciates," he added.
"With the exchange rate now set, farmers’ attention will be turning to the delivery of the BPS payments.
"Late payments last year caused significant cash flow problems to many thousands of Welsh farming businesses but following discussions with the Welsh Government we are heartened by the news that they are confident of returning to their normal excellent payment delivery levels when the payment window opens on December 1.
"It will also be crucial to ensure that cross border payments are not unduly delayed and that the Rural Payments Agency and Rural Payments Wales are able to quickly and effectively share data."
Scottish Rural Economy Secretary Fergus Ewing said the increase ’must be welcomed given the current challenges facing rural Scotland’.
"In addition, farmers should receive a letter today setting out how to apply for the national BPS and Greening loan scheme announced earlier this month.
"Those eligible and who apply by 12 October will receive 80% of their 2016 Basic and greening payment in the first two weeks of November.
"I hope this, combined with the confirmation of the exchange rate today, will provide some clarity and certainty which farmers need to enable them to plan for the year ahead while driving forward the rural economy."
Jonnie Hall, NFU Scotland’s Director of Policy said: “Continued uncertainty about the impact of Brexit has weakened Sterling against other currencies, including the Euro.
"Although that had helped strengthen the competitiveness of UK exports, prices for agricultural goods remains too low," he said.
"Given the desperate situation many farmers and crofters in Scotland are facing with low prices, increased output costs and challenging weather, this will be a welcome boost at this time of year."
George Chichester, partner at Strutt & Parker, said the confirmed exchange rate was the highest the farming industry has seen for five years.
"However, in addition to the rise in the rates of payment, farmers will be hoping that this year they see a significant improvement in the performance of the payment agencies dealing with their claims," he said.
"The 2015 scheme year was dogged by problems, in England and Scotland in particular, with many farmers experiencing payment delays as a result.
"Some farmers are still waiting for errors on their claims to be corrected."