Whilst there are plenty of opportunities for the agriculture sector to optimise yields and innovate through greater use of agri-tech, the industry also faces a number of challenges. Fluctuations in foreign exchange rates can pose a number of issues; the precipitous drop in the value of the sterling in September 2022, for example, pushed up costs for many key inputs, such as machinery, feed ingredients and fertiliser. Such rises in farm input costs can have a dramatic effect on the profitability of arable farming, and it is likely, in light of the recent increase in geopolitical volatility, that exchange rate movements will continue to create more issues for farmers looking to acquire vital tools and equipment for the foreseeable future.
There are a number of challenges that the industry faces, therefore, and so the need has never been greater for farmers to find ways to mitigate their foreign exchange risk and remain profitable.
What contribution does the agriculture industry make?
The agricultural industry, and indeed the food and drink industry at large, make a number of key contributions to our economies and daily lives. As many as 8.7m people worked in the EU’s agriculture industry in 2020, and the UK’s agricultural sector contributed £11.2bn in gross value (0.51% of GDP) in 2021, an increase of £914m compared to 2020.
In addition to the economic value that farmers provide, the global agriculture sector contributes to the food security of independent nations, and it is rightly regarded as one of the most powerful tools to end extreme poverty and feed an estimated 9.7 billion people by 2050.
How international payments can affect the UK food and drink industry
Exchanging pound sterling for foreign currencies is commonplace across all agricultural practices; making such exchanges is often required to import machinery and a range of other supplies from abroad. It is also necessary when exporting goods to international buyers and shippers. Many farmers in the UK employ workers from overseas, many of whom understandably request payment in a foreign currency that they can then repatriate.
The wider food and drink industry is the biggest manufacturing sector in the UK, and it is also affected by exchange rate fluctuations. The UK imported 46% of the food that it consumed, or £48bn of food, feed, and drink (FFD), in 2020, and it exported £21.4bn. Given the UK’s dependence upon international supply lines to meet its food needs, particularly to fulfil its domestic demand for out-of-season products, the UK food and drink industry frequently uses substantial amounts of foreign currency and thus often turns to foreign exchange solutions. It is, therefore, profoundly affected by fluctuations in exchange rates; the USA is a net exporter of food to the UK, and the fall in the value of the pound against the dollar that was recorded in September 2022 has pushed up the prices of US imports. The UK imported £1.3bn worth of food in 2020; that same amount of food, if purchased in September 2022, would cost an extra £200m.
Those employed in the food and drink industry make international payments on a regular basis, as we have seen, and they are liable to incur significant costs if poor exchange rates have been agreed; costly transfer fees from banks and FX providers, moreover, can further eat into your profits. You can protect your profit margins, fortunately, by minimising your foreign exchange exposure and planning your budgets well in advance.
How we can help your business save money
Farmers and agricultural companies can rely upon Moneycorp to deliver a valuable, cost-effective service when they sign up for a Moneycorp business account. You can process and manage a wide range of international payments via our secure online platform and enjoy 24/7 access.
Each of the businesses that decide to partner with us are assigned an account manager who understands how your sector operates. They will help you navigate the currency volatility that may impact your business in order to ensure that you are offered a currency solution that fulfils your business needs.
Our service makes it easy to execute bulk payments, whether it is to cover your business’s operating costs or pay staff salaries, in more than 120 different currencies and to over 190 countries. It also gives you the ability to use a range of FX tools, including currency forward contracts, spot contracts and FX orders – all of which enable you to hedge your foreign exchange risk.
How has Brexit had an impact on agriculture?
Brexit has had a profound impact on the UK’s agriculture sector. The National Farmers’ Union estimated that up to £60m in produce was thrown away over the summer of 2022, as a consequence of immigration rules on low-skilled workers being reduced after the EU’s free movement of people provisions ceased to apply in the UK because of Brexit.
The pound fell by 15% post-Brexit, which made it easier for British farmers – particularly livestock farmers – to compete with foreign imports. However, this is a double-edged sword, as we have seen; farms of all sizes in the UK import agricultural machinery and supplies from the EU, sometimes pre-ordering items in advance. Farmers were left with little choice but to pay more than they would have otherwise done for this equipment. Moving forward, there are concerns that post-Brexit regulation imposed by the UK government will hit British farmers’ exports the hardest.
Our multi-currency accounts offer great value for UK farmers looking to sell their produce abroad. We can help farmers manage multi-currency transactions and limit their currency exposure.
Our guide offers more information with regard to navigating the international supply chain and alternative markets to consider for suppliers post-Brexit.