Agriculture benefits from weaker currency
"The recent exchange rate fluctuations will have a huge impact on farming incomes. If the weaker currency trend continues not only will this increase Single Farm Payment significantly, the impact on international trade will be considerable with imports becoming more expensive whilst UK exports become more competitive," said Carmen Suarez, NFU Chief Economist, to Glamorgan NFU Cymru members recently.
Local NFU Cymru members welcomed the news that agriculture tends to fair well during times of recession during the meeting which was held on farm at Dyffryn Springs, near St Nicholas. Ms Suarez said, "Agriculture is more resilient than other sectors when the economy slows and overall a weaker sterling has a positive impact on farming revenues. Demand increases for more competitively priced UK exports whilst competing imports become more expensive and less attractive. Although, input costs, most notably energy, fertilisers and machinery, will increase as the national currency depreciates - the positives far outweigh the negatives."
In her address Ms Suarez also looked at the global future of agriculture. She said, "We must look at the future demands for our products. By 2050, we can be looking at nine billion people in the World (compared to 6.5billion today). Economic growth is also an important factor - whilst everyone demands food, the type of food that will be demanded will be different depending on the level of income. When income rises people"e;s diets move towards more animal-based protein (meat and dairy products) and less grain. However, demand for animal based protein will obviously have consequences in terms of demand for grain."
"Using Asia as an example, growth rates indicate an increase of 40 million new people in the continent each year. New Zealand, our main competitor, may reconsider exporting their products to the UK, if there is demand for food closer to home.
"On the supply side, whilst it is clear we cannot create land, we need to focus on future productivity of the land available to us now. Climate change, water availability and soil erosion are all important factors. If demand increases – some land will be brought back into production - we have already seen the re-instatement of set-a-side land in the UK.
"However, we can expect serious change in land productivity as a result of climate change – Australia has harvested half it"e;s normal crop two years in a row as a result of severe droughts – this is questioning the country"e;s role as an exporter. In the short term, there will be land that can come back into production – even if production is limited. Long term – availability of supply will become an issue.
Commenting on the topic of current food prices, she said, "There has been much hype about current food prices in the media with some exaggerated figures being conveyed. If the average household spends 10% of disposable income on food and food inflation is 10% - this actually translates into a 1% increase in the cost of living. The inflationary impact of fuel price increases must be more than that of food yet it does not receive the same attention by the media or politicians. Food prices have been the scapegoat."
Closing the meeting, Richard Isaac, NFU Cymru Glamorgan County Chairman said, "The exchange rate will prove crucial for Welsh farmers this year, affecting not only our international competitiveness but also the level of agricultural support we will receive. Although market prices have been better this year, input prices have escalated making it very difficult for farmers to forecast their financial situation."
