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Farm borrowing rose to £16.9bn at the end of May 2015, according to Bank of England figures.

The past year has seen UK and foreign currency net lending to agriculture increase by £1.3bn from £15.6bn in May 2014.

Bankers and analysts are reporting while some farmers are borrowing to ease cashflow problems, there are many others who are investing to future-proof their businesses.

See also: Farmer guide to using Annual Investment Allowance

The Agricultural Mortgage Company (AMC) said it had experienced its busiest first half for five years, despite expectations that many businesses would rein in spending plans.

“The main reasons we are seeing for borrowing are land and farm purchase, building and infrastructure improvements, and finance restructuring,” said Jonathan Allright, head of AMC.

“Generally, it’s the most efficient farmers who are continuing to expand. And in part, this is due to the extremely attractive fixed rates currently available in the market.”

Investing in renewables

Mr Allright said customers were also investing in renewable energy schemes and building conversions, taking advantage of changes to permitted development rights.

“Other farmers are simply looking to restructure their current borrowings to help manage costs and ‘trade through’ a challenging time or to access additional funds.”

While interest rates were expected to rise towards the end of the year, there were still 30-year fixed rate loans available at between 4% and 5% for the largest deals, and 10-year loan rates at 3.5% to 4%, he said.

Roddy McLean, director of agriculture for RBS and Natwest, said there was a range of needs across all sectors.

“Borrowing has been rising for the past year and some of it is down to working capital requirements,” he said.

“But there are also other businesses reinvesting. If you look at the dairy sector there are those people on aligned contracts, still on a good price and making a margin, who are investing to future-proof their businesses.”

Time for investment in farms

Oliver McEntyre, national agriculture specialist at Barclays, agreed investment and cashflow pressures were both driving demand for borrowing, but the split was probably more focused on investment with a smaller amount for increased cashflow to help combat reduced income.

“With all farmgate prices at low levels compared with the past few years, most farmers are seeing pressure on their income.

“However, some are viewing now as the time for investment – for example, increasing herd size and investing in infrastructure and new technology to maximise their income when the current trough begins to turn into the next peak.

“We are also seeing farmers wanting to assess their working capital needs for the coming months and the advice here is simple: communication is key. Talk early to your bank, which can work with you to help your farm business through these pressured times.”

Farmer cashflow still weak

Anand Dossa, NFU economist, said pressure was going to remain as farm business income was expected to fall across all farm types for the 2014-15 period and total income from farming had also dropped.

“There are confident farmers who are investing and it helps that interest rates are favourable.

“But the cashflow situation is still quite weak and hence borrowing continues to increase.”