Sterling’s fall could support UK competitiveness on export markets

Published 29 June 16

The EU referendum has resulted in uncertainty over what the future holds, and brought a rapid decline in the value of Sterling. Since the vote, Sterling has fallen 8% against the Euro and is currently at its lowest level since Mar 14. In theory, a weakened Sterling should result in UK products being more competitively priced on export markets. Using the latest weekly EU butter and SMP wholesale prices (19 Jun 16) and converting them to a milk price equivalent (AMPE) in Sterling using the exchange rates from 23 Jun 16 (£1 = €1.297) versus the 28 Jun 16 (£1 = €1.197), highlights the impact to potential market returns. At the 23 June 16 exchange rate, AMPE would have been 18.1ppl, while the same calculation at the 28 June 16 rates, puts AMPE at 20.1ppl. The currency impact therefore puts EU prices 2.0ppl higher when viewed in Sterling terms.

Currency is only one factor in market prices, and while this significant shift could be supportive to the UK dairy industry in the short term, other key drivers remain. The underlying supply and demand situation will determine whether farmgate prices benefit or EU commodity prices fall to compensate for the weakening of Sterling.

Exchange rates 29.06.16

The other potential benefit from a weakening pound is the impact on Basic Payments (BPS).

In 2015, BPS entitlement values for England equated to:

  • €244 for Severely Disadvantaged Areas (SDA)
  • €244 for lowland
  • €70 for moorland

Last year the September exchange rate of £1=€1.365 was used to convert these into actual payments to farmers, should Sterling be worth less than this in September 2016 then Basic Payments would be higher for UK claimants.

As well as the potential short-term benefits noted above, currency will have a similar impact on input costs. Making any imported products more expensive in the UK, including feed, fuel and fertiliser.