Food exporters urged to hedge to protect trade value
Mr Sheils told farmers at the annual general meeting of Commercial Mushroom Producers that any company with significant sales in one country may hold a natural hedge on its currency risk if it also generates expenses in that country.
This may be limited for many mushroom producers due to the amount of locally sourced inputs, but can still be used to reduce the impact of currency movements on a business’s profits, he told the growers at the meeting in Mullingar, Co Westmeath.
Mr Sheils said: “Currency movements can affect the margin that your business earns, but hedging can protect against adverse movements in exchange rates by enabling accurate forecasting and budgeting.
“It is also the prudent approach where cashflow or margins are tight. While we have already seen a significant depreciation in the value of sterling, it’s never too late to adopt a treasury policy.”
Sterling has fallen by over 20% against the euro in the past year putting pressure on mushroom producers who are now facing lower prices in euro terms.
AIB told mushroom growers to consider forward contracts and foreign exchange options to reduce the risk of their profit margins being eroded further by adverse exchange rate movements.
AIB’s Treasury division has partnered in hosting currency workshops for Bord Bia as part of the agency’s series of Brexit briefings designed to assist companies in the food industry prepare for the consequences of Brexit.
AIB chief economist, Oliver Mangan, recently commented: “There are ongoing downside risks for sterling given the large balance of payments deficit in the UK and mounting concerns about a hard Brexit from the EU.
“Market positioning is very short on sterling so the currency could see a short-term bounce as traders take profits. This might present a hedging opportunity for those who export to the UK.”
