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Euro zone crisis seen threat to UK farm profits
* Weak euro makes UK exports less competitive
* Crisis may also lead to cuts in EU farm spending
By Nigel Hunt
BOOTHBY GRAFFOE, England, June 13 (Reuters) - The debt crisis in the euro zone poses a serious threat to the profitability of farms in Britain, because the decline in the single currency is likely to curb exports and the value of support payments, banking and farming sources said on Wednesday.
"The exchange rate between the pound and the euro is a massive part of UK agriculture's profitability," Peter Kendall, president of the National Farmers Union of England and Wales told Reuters at Britain's major agricultural show for arable farmers, Cereals 2012.
British farmers receive an annual support payment from the European Union, which is set in euros, and its value in sterling terms has been declining as the British currency has risen, reaching a 3-1/2 year high against the single currency last month.
"It is not just the single payment, it is also the fact that so many of our export markets are in Europe. The moment the exchange rate changes, it is harder to sell into those markets," Kendall added.
Most British wheat exports, for example, are shipped to the euro zone, with the Netherlands and Spain by far the most important customers.
Allan Wilkinson, head of agriculture for HSBC Bank plc, warned farmers at the event that returns could fall sharply in the face of currency fluctuations and cost increases.
"Our calculations show that the surplus on a combinable crop farm could be hit by 29 percent due to a combination of upwards pressures on costs and fluctuating currencies," he said.
"Such a shortfall means it is imperative that farmers must consistently reassess their budgets and ensure they are taking action to protect their businesses."
Charles Whitaker of rural property firm Brown and Co said wheat production costs in the UK had almost doubled in the past five years.
"The problem comes if commodity prices fall. Currently profit and loss accounts are showing positive without the single farm payment, but it wouldn't take much of a price fall to change that," he said.
"And if support levels fall, which given the current turmoil in the euro zone seems possible, then we have an even bigger problem."
The euro zone debt crisis is also likely to lead to more pressure to cut public spending including the EU's 55 billion euro ($69.2 billion) annual farm subsidy bill, which consumes about 40 percent of the total budget.
"I suspect there will be a budget cut," NFU's Kendall said.
The European Union is in the process of setting spending for its Common Agricultural Policy (CAP) until 2020 and the EU's executive has proposed it be kept around its current level.
NFU Combinable Crops Chairman Andrew Watts said, however, there was no mechanism to adjust for inflation, adding the debt crisis had the potential to raise EU inflation rates and therefore erode the budget in real terms.
($1 = 0.7953 euros) (editing by Jane Baird)
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