UK agriculture borrowing figures reach all time high
Borrowing levels for the UK agriculture sector have broken the £10 billion mark for the first time, according to figures released today by the Bank of England (4 August 2008)
In the quarter to June 2008, UK agricultural borrowing grew £512 million, or 5.02%, bringing the total national lending to the farming industry up to £10.192 billion. This compares with £9.44 billion at the same time in 2007, an increase of 7.37%. Deposits are down £148 million from the previous quarter, taking the value of deposits held by UK farmers to £4.873 billion.
Commenting on the figures, Paul Spencer, Agriculture Director for Lloyds TSB Bank plc said:
"The Bank of England figures bring the issues facing the industry into sharp focus. Despite significantly increased market prices for most agricultural products over the last twelve months, debt has risen. This clearly reflects the massive increase in input costs which is impacting upon cash flow and profitability.
"In the bank we have seen many cases of overdrafts being extended to cope with not only increased input prices but also much tighter credit terms from suppliers, particularly fertiliser.
Coupled with this has been increased forward purchasing as a hedge against further cost inflation. The concern must be whether output prices remain high enough to enable satisfactory profits to be generated over the coming year. We have already seen grain prices falling back significantly. If businesses are locking into input costs they must also consider locking in to forward sales contracts where possible, to secure a profit margin.
"However, despite the effect of input prices at AMC we have seen lending up significantly in the first quarter of 2008 compared to the same period last year. This illustrates that although costs are rising, farmers are showing an increased optimism on the back of improved commodity prices, and are taking the opportunity to invest in new plant and machinery, buy extra land or make changes to their businesses that will secure sustainable profits in the years ahead.
"With ever volatile market conditions, risk management has become a key issue for all businesses. As a bank we are very aware and ensure that our specialist agricultural managers have the 'risk' discussion with all our customers so that we can offer support through these challenging times."
