UK farm debt spiralled by more than 1bn last year to hit a record high following delayed single farm payments and sliding agricultural returns.
The latest Bank of England borrowing figures, which cover the final three months of 2005, show year-on-year lending rose almost 13% to 9.4bn.
The increase from the previous quarter was only 2.6%, but in previous years debt has usually fallen during this period as farmers banked subsidy cheques and sold crops.
HSBC’s senior agricultural manager John Barker said 350m of support payments had already been paid to Scottish and Welsh farmers, suggesting English producers were bearing the brunt of the higher debt.
722m of the extra loans was covered by new bank borrowing facilities, but farmers were also using a great proportion of their existing credit limits, he added.
“Utilisation of limits has risen to 82%, but overall this is still a comfortable level.”
Barclays’ agricultural policy director Euryn Jones said a significant majority of the bank’s customers had been forced to extend their overdrafts or take out a special loan to cover the shortfall caused by the delayed support payments, which would have been received around November under the IACS regime.
“I would say that just over half the increase in borrowing has been caused by delayed single payment, and the remainder by the year’s disappointing trading conditions,” said Mr Jones, who estimated that the extra cost of borrowing from 1 December had cost English farmers about 25m.
Tim Porter, director of agriculture at Lloyds TSB, said: “Evidence shows many farmers are hanging on to crops in the hope of increased prices at a later point, albeit it at a cost of extra interest payments.”
Poor commodity prices had hit arable farmers particularly hard and Barclays’ lending to the sector had increased by 26% during 2005, added Mr Jones.
Figures released by the National Audit Office last month show that the total income from farming in the UK fell 11.4% to 2.5bn in 2005, while net farm incomes dropped 2.2% to average only 17,500.
Despite this, Mr Jones said he did not know of any examples where Barclays’ customers had been pushed over the edge by the extra debt.
“Agriculture still has a very strong balance sheet.”
George Dunn, chief executive of the Tenant Farmers Association, said many of his members were on a knife-edge, but nobody “had fallen off yet”.
However, he said that the bank lending figures didn’t tell the whole story because farmers were also delaying payments to their creditors.
“Nobody has lost their businesses yet because of the delayed payments, but belts are very tight.”