Borrowing still rising, says Bank

By Robert Harris

FARM borrowings are rising for the fifth year running, according to latest Bank of England figures.

Lending in the first quarter of 2000 to agriculture, forestry and fishing stood at 7.89 billion, 6.3% higher than the same period last year.

“This time last year we saw a 4.5% rise,” says Sion Roberts, NFU chief economist.

“Total borrowings are now higher than the worst point in the last recession in 1990, despite some good years since, which strengthened farmings balance sheet.”

Dairy remains a concern and arable farmers are facing real pressure, says Mr Roberts.

“Last year, high grain yields helped. We could return to trend yields, and prices for new crop are 6-7/t lower.

“Area payments are due to fall, and there is no guarantee of aid. Individuals must look at their financial situation carefully.”

Barclays is lending about 9% more to farmers compared with the same period last year, says agricultural director, John Page. “Arable farmers are borrowing much more.”

Barclays figures show a 16% rise in lending to the sector, with combinable crop growers on brashy soils under greatest pressure.

Arables debt-to-credit ratio is 3:1, up from 2.5:1 in the first quarter of 1999.

That is well below the pig sector, which remained at 9.5:1.

“At 95p/kg for finished pigs, farmers are covering their costs, and starting to pay back debts.”

Dairy is Mr Pages chief concern. Borrowings are up 8%, and milk producers owe just over 8 for every 1 in the bank.

“It is unlikely to rise much more. We are meeting informally with some clients to see if there is a better way of doing things.

“We have about 6000 dairy producers, but we may see 500 fewer by the year end.”

Steve Ellwood, head of agriculture at HSBC Bank, says the main problem is that higher borrowings reflect falling income, and there is little, if any, reinvestment on-farm.

“Many businesses are having a hell of a struggle and our immediate aim is to help them stem losses and survive in the short term.”

Farmers need to work out how they can cope with the current :Euro exchange rate, he adds.

“If they do this, any improvement will see them return to profit immediately.”
Like all bankers, he insists there is no panic.

“Most businesses have sufficient assets, and time, to react.”

And, he adds, cash on deposit has remained static at just over 3bn.

“The strongest businesses are making much less, but they are spending much less, too.

“We do not expect asset values to collapse, as there is a price at which these cash holding farmers will be unable to resist the opportunity to invest.”

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