12 April 1996

Investment falters

FOLLOWING three years of strong investment by UK farmers, MAFF believes there was a slight downturn in 1995.

According to figures in its recently published Agriculture in the UK, farmers spent just short of £2bn the year before re-equipping and repairing their farms. In particular they invested 25% more in buildings, 13% more in machinery and 10% more in vehicles.

"But a slight decline is expected in 1995, with further increases in plant, machinery and vehicles being more than offset by a reduction in buildings investment in Northern Ireland following changes to the capital grants schemes," it claims.

NFU economists do not agree. "There is a strong correlation between net farm income and capital formation," says Sion Roberts. Following a 34% rise in farming income in 1995, the NFU expects to see another 15% increase in investment to £2.2bn.

In particular, it points to the higher profits from arable and dairying – two of the more capital intensive sectors of the industry. But in real terms, gross capital formation is still below the early 80s when more generous tax breaks encouraged farmers to invest.

&#8226 Interest charges increased 11% to £594m in 1995, due to a small rise in the rate itself (to 9.3% on average) and a rise in the total amount lent to farmers. But margins over bank base rates dropped a point to 2.6%, reflecting the greater competition between financiers to lend to agriculture.