AT THE end of last month, the Rural Payments Agency announced that the exchange rate for the 2016 Basic Payment Scheme would be £0.85 to the euro, with the weaker pound giving Scottish farmers around 12p more for each euro of subsidy this year than they did in 2015.

However, the Bank of Scotland's area director for agriculture, Sandy Hay has revealed that an increased number of the bank’s customers chose to minimise their exposure to possible currency losses this year by opting to receive their subsidy in euros, with many also forward fixing their exchange rate earlier in the year.

“In 2016 we saw a three-fold increase over the previous year in customers in Scotland choosing to secure their exchange rate in advance, thereby fixing the amount of payment they would receive at the end of the year,” said Mr Hay.

“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.

“The choice of whether to receive the payment in Sterling or Euros is often down to priorities and personal choice, with another option being to receive the funds in Euros, keep them in a Euro account then choose the date the currency exchange is carried out," he explained.

“Whatever choice is made, it is important that farmers understand the risks and opportunities as the Basic Payment Scheme provides a critical income for many. All our agriculture relationship managers have the skills and knowledge to discuss this risk with customers to help them consider the strategies available to their business. I’m delighted that the bank has been able to help mitigate some risks and support our farming customers in what has been a volatile sector, particularly in recent years.”

Lloyds Banking Group economist Nikesh Sawjani added: “Since hitting a low around £0.70 in mid-November last year, the Euro exchange rate has risen by nearly 25% to a three-year high around £0.87 in recent weeks.

“The recovery in the Euro has been largely driven by increasing stability in economies such as Greece and Portugal. This, along with the central bank’s commitment to preserve the single currency, has helped to ‘buoy up’ the Euro. Meanwhile, the UK’s decision to leave the EU saw the pound fall by 9% against the Euro on June 24, 2016.”