The amount Scottish farmers owe to banks stands at its highest level since records began in 1972, according to latest figures from Scotland’s chief statistician.
Bank of England figures also confirm that lending to UK agriculture is higher than it has ever been – up more than £700m since the start of the year (see “The UK position” below).
The Scottish government’s annual survey shows that outstanding loans to Scottish farms rose by £113m in the year to 31 May 2017, taking it to £2.32bn.
This is a 3% increase in real terms once the effects of inflation are taken into account.
The report said while bank borrowing had been steady during the decade of the 2000s, debt levels had increased each year over the past eight years.
About 50% of total liabilities are long-term loans, a percentage that has risen from 39% in 2003.
However, while liabilities have risen, they only equate to 8% of assets, which compares favourably to 16% in 2003.
In addition to bank loans, farms have an estimated £1.1bn of liabilities, related to hire purchase, family loans and other sources.
Lack of profitability
NFU Scotland chief executive Scott Walker said the figures were bad news for Scottish agriculture.
“This is the eighth consecutive annual increase and underlines the lack of profitability across farming,” he said. “Food and drink is Scotland’s largest manufacturing sector and requires a strong farming sector.
“We need to forge a new partnership between farming and the rest of the food and drink supply chain.
“There is ambition to double the size of Scotland’s food and drink industry by 2030. Without successful farming this will never be achieved.”
Rural economy secretary Fergus Ewing said the fact banks were lending to farmers was a sure sign of confidence in the sector and it was vital that farmers had access to capital.
“However, with many farmers relying on subsidies for a large part of their income, we must be wary of farmers getting into excessive and unmanageable debt,” he said.
“I would encourage any farmer who is experiencing financial hardship, or is looking for help on increasing the sustainability of their farm, to contact our farm advisory service for support.”
The UK position
In the UK as a whole, agriculture is one of only two sectors that have seen consistent growth in outstanding debt in recent years – a 57% increase over the period 2010 to 2017.
However, financial experts point out that because of rising land values, the level of debt as a percentage of the balance sheet is relatively low for the industry as a whole.
It is the ability to service the debt that can be the bigger challenge on farms, rather than the provision of collateral.
Bank of England figures show lending to agriculture rose from £18.13bn in July 2016 to £18.64bn in July 2017 – the highest it has ever been.
Levels of debt fell back to under £18bn in December and January – the time of the year when subsidies hit the majority of farmers’ bank accounts.
However, since January 2017 they have risen by £718m.