Farmers should shop around more for banking deals

Farmers generally get easier access to borrowing than other businesses of a similar size but they do not shop around enough.

These are two key findings from the NFU’s banking survey which ran for a month in April, attracting almost 500 responses.

Over the past two years, borrowing to UK agriculture has increased by 7.1%, with growth mainly fuelled by the cereals, pig and poultry sectors.

Despite the extra borrowing, farm businesses have lower debt levels as a proportion of business assets than two years ago. Specialist pig farms generally have the highest debt to asset ratio while poultry farms pay significantly higher interest rates than other sectors.

Borrowing is still rising but the rate has slowed. Although the base rate has been at 0.5% since March 2009, lending rates across sectors have crept up by 0.5% since the start of 2011, said senior economist James Edwards.

At about 97%, approval rates for farm borrowing applications are way above the 80% mark common for similar businesses outside farming.

“The majority (of those looking to increase borrowing) are very specific in their behaviour, approaching a single bank about one product, typically a new loan or overdraft extension,” said Mr Edwards.

Very few approached more than one bank for a new overdraft but farmers were more likely to shop around for loans. Even so, only a third approached two or more potential providers.

The accounts of more than 2,000 farms over the past five years showed that neither liability to asset ratios nor farm net margins had any clear relationship to interest rates.