Aid keeps borrowing down

22 February 2002

Aid keeps borrowing down

AGRICULTURAL borrowing fell last year as foot-and-mouth compensation payments helped shore up the bottom line on many livestock farms.

Latest Bank of England figures show total bank lending to farmers stood at £7.43bn on Dec 21 2001, a fall of 3% or £241m over the year.

The biggest drop – £318m – came in the fourth quarter. "This is bigger than we anticipated," says John Colley, senior agricultural manager at HSBC. "The fall is in spite of delays in IACS payments and low cereal yields on many farms."

He believes the main reason is the redistribution of F&M compensation payments. Many farmers hit by the disease started restocking towards the end of last year, allowing vendors to reduce borrowing.

"The reopening of the over-30-months scheme and the easing of movement restrictions also helped cash flow on many farms," says Mr Colley.

Despite the fall, Grant Phillips, managing director of Barclays Agricultural Banking, says farm borrowings are still four times total income, which is not too much of a concern while interest rates remain low.

Treasury figures, which average all independent projections, show the base rate is likely to average 5% in 2003, only 1% more than now.

Nevertheless, with a view to the longer term, banks are taking a closer look before they lend money. "Our commitment to the sector remains," says Mr Phillips. "But farmers plans must stand up to scrutiny and be credible. Will the enterprise deliver a profit? Is there enough liquidity to repay bank borrowing?"

However, overall lending figures are unlikely to fall for a while. "The lack of change in the £:k exchange rate continues to hamper the UK farming industry," says Mr Phillips. &#42


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