Arable farming’s borrowing drives agricultural lending to new record peak

The Bank of England has announced a new record for agricultural borrowing in the UK. Data released today (4 November, 2008) shows that bank lending to agriculture at the end of September this year rose to an all-time high of £11.1 billion. This is an increase of £950 million compared to the same period in 2007 when total lending was £10.1 billion, which equates to a rise of 9.4 per cent. The latest data also represents an increase of 4.5 per cent since the end of June this year, when total lending was £10.6 billion.

Commenting on these figures, Euryn Jones, National Agricultural Specialist at Barclays said “The overall picture masked marked differences between the sectors. Borrowings in the arable sector have risen appreciably throughout the year and our own figures show that we are lending more than we ever have to the sector.

“The combined impact of very high growing costs for next year’s crops, earlier payment for those inputs and expensive bills for drying this season’s crops are now been clearly seen in the amounts borrowed by arable farmers. This year’s harvest yields have been high for most arable farmers, but disappointing grain prices mean that we are unlikely to see borrowing reduce in the short-term.”

In contrast, the dairy sector has seen borrowing fall throughout the year. Although input costs have risen significantly for this sector too, improved milk prices have enabled dairy farmers to reduce debt and we would expect this trend to continue into next year.

Borrowing by beef and sheep farmers has followed the normal seasonal trend, with overdrafts increasing over the summer, but borrowing at the end of September was at similar levels to last year. We would expect lending in this sector to fall in line with normal seasonal patterns as the proceeds of autumn livestock sales are paid-in.

Deposits from agriculture have also increased over the last year, with balances at the end of September 2008 being £4,893 million, compared to £4,354 million a year previously. This is an increase of £539 million, which represents a rise of 12.4 per cent.

Commenting on this development, Euryn Jones said that “this largely reflects the profits made by non-borrowers during that period. The Bank of England statistics show however that deposits in the industry as a whole fell by £115 million between the end of June and the end of September as bills for inputs were paid.”

Looking ahead Euryn Jones commented that the prospects for the farming sector looked brighter than for the general economy. “Undoubtedly, as consumers have less money to spend some farming businesses will be affected by the economic downturn. Those that will feel the most impact are likely to be farmers who have diversified from mainstream agricultural activities and generated income from making alternative uses of their farms’ resources.

“While the agricultural economy cannot be totally insulated from the impact of a general economic slowdown, the fortunes of farming businesses are rarely in step with the wider economy and the fortunes of farming businesses frequently take a different direction to that of other businesses.

“During challenging economic conditions farming will benefit from the fact that consumers will prioritise expenditure on food and the weakness of Sterling means that the farming industry’s exports are more competitive and imports more expensive. The gloom that pervades some other sectors should not cloud a brighter farming sector.”