Farm debt at record levels

FARM DEBT has reached record levels with this year‘s rain-sodden harvest putting pressure on cash flows, according to some bankers.

Bank of England figures, released this week (w/e Nov 12), show that borrowing during the third quarter of the year rose 2.7% to £8.5bn.

This is the highest ever for this period, said Lloyds TSB‘s agricultural director Tim Porter, and 1.1% higher than a year ago.

“There has certainly been a rising trend in lending over the last year, with a clear increase over the last quarter,” Mr Porter said.

“This is a particular reflection of the poorer harvest conditions and the increased drying costs incurred by farmers due to the wet summer.

“Then this is coupled with the sluggish market for commodities it is no wonder that cash flow has been hit hard.”

Steve Ellwood, head of agriculture at HSBC, said the real impact of the disappointing harvest would start to feed into the figures in the second quarter of 2005.

But although the figures were a cause for concern, he pointed out that they were within the £10.8bn borrowing limit approved by the banks.

Mr Ellwood was worried more by the level of farmers‘ bank deposits, up 3% on the year to £3.3bn, because it hinted at a growing gap between those businesses that were cash positive and those that were struggling.

NFU chief economist Derrick Wilkinson said he hoped that some of the extra debt was being used sensibly by farmers to invest in restructuring their businesses to make them sustainable in the light of CAP reform.

Richard Lole, head of agricultural policy at Barclays, agreed with Mr Wilkinson. “Our own figures show that lending to the arable sector remained stable, but rose by 12% in the beef, sheep and dairy sectors.”