The wider economy may be in financial turmoil, but Scottish farmers are optimistic about the future of their businesses and enjoying record levels of profitability.

Those are the encouraging findings of the latest Scottish Agricultural Survey by Lloyds TSB, whose chief economist, Donald MacRae said farmers had enjoyed a successful 2008 and were noticeably more optimistic than the rest of the economy.

“In the middle of a credit crunch farming is demonstrating its resilience. The sector remains a low risk for lenders, and farmers should expect increased competition for their banking business in the next few years,” he said.

Of the 237 farmers responding to the survey conducted in December 2008 (1100 were mailed on a random basis), 83% reported profitability in the last full financial year, the highest percentage since the survey began 13 years ago. For 62% of respondents, pre-tax profit exceeded personal drawings, also the highest result in the survey’s history. Almost half have business income from non-farming sources.

While expectations for future profits have fallen slightly, they are still the fourth-strongest result to date. There was a 9% increase in the number of producers who viewed prospects as challenging.

Livestock and hill farmers were most optimistic about the future, a reflection of recent increases in farm gate prices for cattle and sheep. Dairy farmers who are operating profitably fell by 14% to 74%, while arable and mixed producers showed lower levels of optimism, probably due to increased input costs.

But those farmers who are making money are quickly reinvesting their profits. Investment statistics showed farmers spending more on tractors, equipment, buildings, improvements and increasing livestock numbers than they had predicted the previous year. They anticipate continuing to spend, but at slightly lower levels in 2009.

Total lending to Scottish farmers by all banks stands at £1.4bn, up 2% on the previous year. Some 70% of respondents reported that availability of bank credit had not changed over the year, despite a survey by NFU Scotland showing a tightening of credit. Over the year 23% of farmers experienced an increase in bank credit margin of 0.84%.

Demand still growing
The longer-term prospects for the food and agribusiness sector remain positive, despite the gloomy economic outlook, according to a new report from Rabobank.
It expected demand for food and agricultural products, in volume terms, to keep growing, while global economic growth was expected to decline 2.3% in 2009. Key drivers for the food and agribusiness sector would be the increasing world population, changing diets and biofuel production competing for feedstocks, it said.
Some rise in commodity prices was possible as the economic situation improved, likely to be after 2009, Rabobank said. It also predicted oil prices would fall to an average of $69 a barrel in 2009, compared with $97 last year.
Inflation was likely to fall significantly in 2009, the report said, with food price inflation in particular expected to come down fast after declines in commodity prices.