Farm lending rises as farmers feel the pinch

Lending to agriculture increased by almost 10% in the first quarter of 2009, driven by falling commodity prices and higher input costs.

The latest Bank of England figures showed that agricultural borrowings rose by 9% against the same quarter last year, to almost £11bn. Euryn Jones, national agricultural specialist at Barclays Bank, said the increase was as expected. “It generally reflects the seasonal increase for the time of year.” Traditionally, cash flow was tight in the first quarter, when farmers borrowed more to pay for inputs like fertiliser.

But the figures were also skewed due to the early receipt of the single farm payment, which boosted incomes at the end of 2008 rather than in early 2009, he added. “That accentuates the trend.”

The outlook for arable and dairy producers for the rest of the year was uncertain, due to volatile markets, but beef and sheep producers were likely to have a reasonable year, said Mr Jones.

Despite the economic gloom, Barclays was still keen to lend to the farming sector. “Credit is still available – there is no change in our appetite to lend to our farming customers.” The recession even had some benefits. “The biggest impact is the relative weakness of the pound, which clearly helps our farmers.”

Jimmy McLean, head of agricultural services at the Royal Bank of Scotland, said most lending – about 60% – was to arable and dairy producers. “The past year has been quite difficult for these two key sectors; the combination of incomes under a bit of pressure and rising costs mean it’s not totally surprising that we’ve seen an increase in borrowing.”

Deposits also fell in the first quarter of 2009, down by 4% compared with the same period last year, to £4.9bn. “The two sides of the coin are reflecting tighter cash flow in these important sectors,” said Mr McLean. But many farmers were still reinvesting, indicated by a 10% increase in tractor sales in 2008, and a 6% rise in the first quarter of 2009 against early 2008, he added.

Although overall agricultural borrowing had increased by about 45% over the past decade – compared with about a 35% rise in the Retail Price Index – Mr McLean was not worried about the health of the sector. “Agriculture probably won’t be affected by the recession as much as other sectors, and I have no cause for concern with the individual businesses that we are lending to.”

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