Latest figures reveal farming debt has fallen

Farming debt has fallen by 1.2% in the past year, according to figures from the Bank of England.

Farm businesses had borrowed £9.39bn at the end of March this year, a reduction of £113m compared to the same time last year.

The figure is 2.4% lower than the borrowing record of £9.62bn in December last year.

Despite the reduction, the cost of borrowing has increased by £23.5m after the Bank of England’s Monetary Policy Committee voted to increase interest rates to 5.5% last week.

Euryn Jones, Barclays’ agricultural policy director, said the interest rate rise would cost the industry “significantly more” than it saved by reduced borrowing.

“Every 0.25% increase in base rate costs UK farming around £23.5 million, whereas the saving on interest charges due to a £113 million reduction in borrowing only amounts to around £8 million,” he said.

“An increase of 0.25% does not sound very significant, but during the last twelve months, rates have increased by a full one percent, which has increased the costs to farming businesses by nearly £100 million per year.”

While Mr Jones reckoned interest rates had probably peaked, farmers with long-term borrowings should look at protecting their business from potential rate hikes, he said.

“It should be borne in mind that farmers who hold credit balances will benefit from higher interest rates.

“Unfortunately though, higher interest rates also tend to strengthen the British currency, which in turn has an adverse effect on farm commodity prices by making imports cheaper and exports less competitive.”

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