The exchange rate to be used for direct farm payments in 2015 has fallen. The rate has been set at €1 = £0.73129 by the European Central Bank, a fall of almost six per cent compared to last year.
The decision affects about 15,400 Scottish famers who choose to receive in sterling support under the Basic Payments Scheme, which has replaced Single Farm Payments in the new Common Agricultural Policy (CAP).
All payments for direct farm payment schemes are set in euros. The conditions on how to convert these amounts into the national currencies of Member States that do not use the euro are set in European Commission Regulations. The regulations allow the European Commission to set in advance the date on which the exchange rate is calculated. For the 2015 scheme year, the rate for all direct payments is calculated on the average of all sterling / Euro exchange rates set daily over September.
In addition, the European Commission is proposing to apply a budgetary control mechanism called financial discipline for a third year, which would mean a further reduction of almost one per cent on all direct payments over €2000. This will be confirmed later in the year.
The Treaty on the Functioning of the European Union states that the annual budget of the EU must comply with the Multiannual Financial Framework (MFF). When it comes to the CAP budget, there is a financial discipline mechanism provided in the current direct payment regulations. If it looks as if the ceiling for direct payments and marketing expenditure is likely to be exceeded, this financial discipline comes into play. The rules say that the European Commission must calculate an adjustment rate.
The European Commission has proposed a reduction of around 1.4 per cent on all direct payments in excess of €2000 (c.£1,460). Direct payment schemes that would be affected in Scotland are 2015 Basic Payments Scheme and the 2015 Voluntary Coupled Support Schemes for Beef and Sheep farmers.
Financial discipline exists to create a crisis reserve to assist European farmers who might be adversely affected by trading events, such as the recent Russian trade ban. It was activated for the first time in 2013 at a rate of 2.453658 per cent. Standing guidance to farmers on the Basic Payments Scheme, the largest element of direct payments in Scotland, carries the caveat that payments might be reduced if the European Commission invokes the financial discipline.