Agri sector confidence grows and fixed rate borrowings increase

As the Bank of England Monetary Policy Committee voted to keep interest rates at 0.5%, farmers are showing increasing confidence in the ability of the sector to weather the recessionary climate and are taking advantage of historically low long-term rates to fix the cost of borrowing.

This is underlined by figures from Lloyds TSB Agriculture which show a 345% increase in fixed rate borrowing in the first quarter of 2009 compared to the same period last year.

"Many farmers are recognising that the current economic climate offers certain opportunities and are choosing to bring forward capital investment projects," says Paul Spencer, Agriculture Director for Lloyds TSB Agriculture and The Agricultural Mortgage Corporation plc (AMC). "They recognize that lower interest rates provide a sound basis on which to borrow money for long-term investments and business development."

"The increase in the demand for longer term borrowing can be seen as an indication of the growing level of confidence in the agriculture sector. With many lead indicators being positive, farmers are investing for the future now through projects such as increased slurry capacity, improved grain storage, livestock units and machinery. The combination of well structured and competitive finance and investment in the right infra-structure will ensure that farmers are well placed for sustainable long term growth," he added.

Many commentators predict that base rates could remain at 0.5% for much of the remainder of this year and possibly into 2010. However, it would be wrong to interpret this as an indicator that fixed rates will remain low or even fall over time.

"Because any borrowing decision carries a calculated risk, any responsible lender will underline the importance of seeking independent and specialist professional advice," continued Mr Spencer. "When considering the right long-term risk management solutions farmers should not forget fixed interest rate and foreign exchange hedging strategies. Lloyds TSB Agriculture has access to a specialist Financial Markets team that works with its farming customers to ensure the right plan for their business is adopted."

"The aim for any business should be to minimize the cost of borrowing and get the most from their interest rate strategy, whilst retaining appropriate flexibility for their business," said Mr Spencer.