A long-awaited reduction in the level of borrowing for the agricultural sector has been announced by the Bank of England, in its latest figures released today (5 February 2008).
In the quarter to December 2007, UK agricultural industry's borrowing dipped £239 million, bringing the total national lending to the farming industry down to £9.59 billion. This follows two consecutive rises totalling £707 million in just six months - with a £388 million increase in the three months up to September 2007, and a £319 million rise in the previous quarter. Deposits are up £695 million on the previous quarter, and at the end of December 2007 the value of deposits held by UK farmers totalled £4.969 billion.
Commenting on the figures, Paul Spencer, Head of The Agricultural Mortgage Corporation (AMC), said:
"Continued increases in lending meant that, at the end of September 2007, farming debt stood at its highest ever level of £9.829 billion. This December reduction is therefore long overdue, and should be welcomed by the industry as a sign of more positive times ahead. However, agriculture traditionally sees a dip in lending in the last quarter and to provide an accurate interpretation of these figures certain external factors need to be considered.
"Towards the end of 2007, many Single Farm Payments (SFP) were made to farmers much earlier than expected. Although hitting bank accounts at the usual time for farmers in Wales, a significant number of their English counterparts received funds much earlier than in previous years. This will have affected borrowing figures for the last quarter.
"In addition, the high prices achieved in some sectors of the farming community have also played a role in the decrease in borrowing. Milk and grain markets have both seen considerable success in recent times, and this will be starting to feed through and affect the national lending figures.
"The value of deposits held by the UK agriculture sector has seen a gradual increase for some time now, but the massive rise in the last quarter of 2007 is unprecedented. In the three months between September and December 2007, deposits rose by £695 million. This compares to an increase of £335 million over the same period in the previous year. The reasons for the higher deposit level in the last quarter of 2007 can partly be attributed to the early payment of SFP prior to the Christmas period, and cereals farmers taking advantage of the much improved grain prices to improve cash flow. It is heartening to see that, for some farmers, price improvements have enabled them to repair some of the financial damages caused by years of bad trading.
"Although the reduction in borrowing and increase in deposits is a strong and positive sign for the agriculture sector as a whole, there are still uncertain times ahead for many. Some farmers, particularly in pig and poultry, are having a tough time in the current economic climate, and the volatility of many markets combined with an unsettled world economy may continue to adversely impact these and other sectors. It will be interesting to see what the next quarter brings, as the results from Q1 2008 may provide a much clearer picture of the UK farming industry."