Currency, the Economy, Brexit and Farming

With less than a month to go until the Brexit / Bremain decision, polls appear to be gradually shifting in favour of remaining in.  Sterling has been gathering a little strength again, reflecting the eagerness of the City to stay in.  Whilst most Britains are starting to feel a little more pre-Europe, one small sector of society, farming (representing barely 2% of the UK population) looks to be taking the opposite view.  According to the Farmers Weekly, (and a few other studies) the majority of farmers are keen to leave the Union and all the baggage that comes with it.

Considering the entire EU project was arguably built around an agricultural policy, and even now accounts for about 34% of EU budgetary spending, this might seem a surprise.  This is particularly so as EU support accounts for over half of farm profits most years and will probably be nearer 75% this year.  DEFRA has published a brief paper on the contribution of support to farm profits which can be found here – https://www.gov.uk/government/publications/the-role-of-cap-payments-in-farm-income

Some individuals have suggested farm support will remain at, or near, current levels, but there have been lots of alternative ideas on how to spend the savings from exit (e.g. healthcare, defence, border controls).  Perhaps, EU red tape and bureaucracy is overbearing; it is a lot.  Some farmers have considerable confidence that Westminster would do a less bureaucratic job.  Perhaps.

The strengthening of the Pound in response to shifting polls hampers agricultural prices in the short-term.  A weak currency makes exports (and imports) go up in value; good for farming in the short term.  However, it is inflationary which tends to erode the benefits over the longer-term.  On the subject of inflation it has passed rather unnoticed that the oil price is now almost double the low point it reached in February.  Political announcements from some of the major producers have triggered the recovery, and fuel prices are likely to increase.  Gas prices remain subdued, however, which should be good news for fertiliser prices in the coming season.

The strengthening of the pound, which has been a response to the shifting polls, does indeed hamper agricultural prices in the short term. A weak currency makes exports (and imports) go up in value; great for farming short term but is also inflationary, which, over time erodes the benefit of higher sale prices.  On the subjectof inflation, has anybody noticed that crude oil is now almost double its low point it reached in February? Political announcements followed by more political announcements have seen to that. Watch out for fuel costs. Gas prices currently remain subdued though, good news for fertiliser prices we trust