Bank lending to agriculture rises in mixed outlook

Parts of agriculture are listed among the business sectors suffering elevated financial stress in the Bank of England’s most recent monthly report.

Hospitality, retail, construction and some manufacturers are in the same bracket.

Lending to UK agriculture stood at £18.8bn in the year to the end of March – a rise of almost 10% compared with the same month in 2025, and a larger annual increase than has historically been the case.

See also: Advice for farmers on switching lenders in a competitive market

Regarding the stress on certain sectors, the bank report commented that the impact so far has been felt more through confidence and margin compression than through a marked rise in business failures or widespread distress-driven borrowing.

Somerset accountant AC Mole met earlier this year with regional Bank of England representatives, who are now in regular contact with farmers in the area to hear first-hand what is happening on the ground in farming.

The NFU meets regularly with agricultural lenders and the union’s recently appointed chief economist, Jack Watts, says that while it is not hearing of a lack of support from banks, there is a lot of focus on working capital and cashflow planning by both farmers and the banks.

“There’s a real struggle for confidence to invest in productive capacity and a lot of interest in investment to diversify,” he says.

Poultry opportunity

As an example he cites the growing interest in investing in new poultry capacity on arable farms, and while banks are supportive of these projects there are often planning challenges.

Poultry diversifies the farm’s income and risk and provides nutrients.

This reduces the reliance on manufactured product and, from a green financing perspective, helps the banks demonstrate they are supporting businesses that are reducing their environmental impact, whether by establishing renewable energy projects or by other means.

“The loss of direct payments means there is no cash resilience, and the SFI [Sustainable Farming Incentive] is not free money,” says Jack.

While much depends on how long the consequences of the US-Iran conflict persist, he points to a potential operational risk to the cropping mix, with milling wheat already carrying more risk, and the possibility next season of a further move to cropping for AD, or to less production from marginal arable land.  

Competition for farming’s business

Charles Whitaker, managing partner of Brown & Co’s agricultural business consultancy, advises mainly arable businesses in the east of England and the Midlands, most of which have sources of income additional to their cropping enterprises.

He says that despite farming’s many challenges, competition among agricultural lenders has increased in the past 12 months, compressing margins to between 1.3 and 1.8 points over base for well-run, well-secured businesses.

“On the flip side, we have seen dreadful arable profits and there is a tide of problems coming, with direct costs and overheads often not being met by production margins, before you consider rent and finance cost,” says Charles.

Marginal land will be challenged in terms of future cropping, with the cost and risk balance a delicate one, especially if fertiliser and fuel markets remain elevated.

Soil dependent, cropping considerations still being worked out include whether enough cost can be shed to enable managed fallow followed by wheat as an option in some cases, says Charles.   

Depending on cost structure, and again on soils, another option is to let land on a cropping licence to vegetable and root crop growers, who are in turn consolidating.

There is strong demand for this at £1,100-£1,500/ha for land with water, and pig land in a similar range.  

Cumbria accountant Dodd & Co has mainly dairy and livestock farmers on its books.

Partner Rob Hitch says the firm is not seeing huge pressure on farm borrowing yet, with most of the increase in borrowing it sees being for investment rather than additional working capital or to fund losses.

However, the cashflow demands of tax bills due from September through to the end of January, depending on business structure, will hit hard in some cases, he warns.

Facility use

Virgin Money’s head of agriculture Brian Richardson says that the extent to which facilities are being used is no higher than usual.

“I genuinely don’t think we’re seeing some of the stress in the market that the headlines are suggesting,” he says.

Had borrowing levels followed inflation, the sum would be about £25bn by now, says Brian. He also points out that between 30% and 40% of farm businesses do not borrow.  

The fertiliser price and the fuel impact is more of an issue for next season, he says, adding that there is some belt tightening in dairy and cereals, while the beef, sheep and poultry sectors are in better shape.

“We’re keeping a watching eye on things. We have seen requests for additional working capital for genuine investment, but the market is fairly business as usual.

“We’re not seeing spikes or undue pressure but there is potential for it into summer and autumn.”

The planning for farm investment projects and to support ongoing activity is increasingly sophisticated and better prepared than in the past on the part of those looking for funding, says Brian.  

Borrowers are also being more proactive when there is a problem, he says, perhaps partly because the safety net of the basic payments scheme is no longer there and there are no guarantees of getting into SFI2026.

Oxbury Bank’s chief commercial officer Matt Ryan says the bank hasn’t seen material signs of distress among its customers, who are largely livestock and mixed farming businesses.

Arable farms make up about 20% of its book.

He says that while borrowing costs overall are higher than they were when the bank launched in 2021, lending margins have come down significantly because of increased competition.

“Farmers are keeping a very close eye on the current free cash they have, I expect there will be a bit of maintenance deferral,” says Matt, who also expects to see an expansion of contract-growing maize to supply AD plants.

“Some working capital requests are coming in earlier than we would expect because of the weather, for example, berry producers whose crops are about two weeks behind expectations, and they need the cash to meet the payroll.”

The fortunes of dairy customers depends on their contract type, he says, while demand for both eggs and poultrymeat means there are opportunities to expand this sector.

Value of communication 

Paul Bradshaw, a consultant to AC Mole, has extensive experience in agricultural banking and advises the firm’s farmer customers on their borrowing.

These are mainly dairy, livestock and mixed farms of 100-120ha, with most paying 2-3.5 points over base on their overdrafts and loans, although a margin lower than two points over base is also achievable in some cases.

In his other role volunteering as a Farming Community Network case worker, Paul sees individuals and families in distress as a result of debt and other issues.

“There is some stress in agricultural borrowing, but sometimes that results from a challenge that the bank is unaware of, such as illness, whether that is a mental health or physical issue,” he says.  

This reinforces the need for good communication, he says, adding that banks are always willing to look at a problem and put something in place to improve or stabilise a situation so that a conclusion can be reached.  

“Sometimes sadly things go so far and because the problems have been ignored, then it cannot be traded out of, and a sale of assets is the result.”