Farm borrowing increases to a record £15.2bn

Farm borrowings increased by almost 9% in the year to April 2014, hitting a new record of £15.2bn.

While on-farm investment is strong, others are still borrowing to help with cashflow, say banks and agricultural advisers.

The past two years have seen farm borrowing rise by 10% from 2011-12 and by 9% from 2012-13, according to Bank of England figures.

Banks and farming advisers said this reflected a mixed picture with high confidence in some areas and a drive towards improvements, expansion and new technology. However others, particularly potato growers and livestock producers, were still struggling with the impact of adverse weather in 2012 and 2013.

David Kinnersley, agribusiness adviser at Fisher German, said he was seeing investment in grain storage, energy-efficient buildings and renewables. Poultry growers were showing a particularly high level of investment, replacing old buildings and expanding, with new entrants keen to join the sector.

The big players in the pig industry also appeared to be investing to expand. Investment in horticulture had also been particularly high due to the level of innovation and confidence in the sector.

Overall the increase in borrowings was, he believed, mostly a result of reinvestment rather than cashflow problems, but investment should be seen in context.

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“While a 9% rise in borrowing is a definite significant rise, it is a catch-up from a decade of underinvestment from low returns,” said Mr Kinnersley.

Investment in the dairy sector was also particularly strong, with a focus on improved operating systems, including robotics, said Oliver McEntyre, agricultural specialist at Barclays. In contrast, he said the bank was experiencing increased demand for borrowings from beef producers to counteract falling prices.

Livestock farmers were also still struggling with legacy issues of the poor weather in 2012 and spring 2013, said Roddy McLean, agricultural support manager at RBS. Increased costs and reduced productivity were still pinching and causing farmers to borrow more.

Total facilities available to agriculture hit more than £18bn in April, with farmers using 80.1% of funds available to them compared with 79.6% in April 2013.

“The trend [in facilities] is upwards and has been for some time – land prices continue to be buoyant and we are seeing farmers who want to expand and improve their facilities, so I can see that bank debt to agriculture will continue to rise,” said Mr McEntyre.

“There is a great deal of confidence out there in agriculture at the moment and we are seeing investment to improve efficiency and give farmers more competitive operating systems.”

Agricultural borrowings increased 48% between 2008 and 2014, but fell by 24% for other industries excluding the financial sector, said Anand Dossa, economist at the NFU. Agriculture has been looked on more favourably due to asset worth and rising land prices.