Lloyds Banking Group has made an additional £120m available in overdrafts to farmers following a delay in their annual EU subsidy payments from the government, and continues to receive further requests on a daily basis.
The Group announced the £500m fund last year when it was learned that there could be a delay to some of the UK’s 100,000 farmers receiving what is estimated to be around £2 billion in Basic Payments Scheme (BPS) funds.
Lloyds Banking Group’s own analysis shows that farming customers received considerably less in Basic Payments to their bank accounts in December 2015 – when the payments were expected – compared with the same period in 2014. As a result, the Group has met requests for an additional £120m in overdrafts to support working capital as of the 1st January, compared to the same period in 2014.
The contingency fund has helped farmers who needed access to finance within the Basic Payment window before their payment arrives.
Andrew Naylor, Head of Agriculture, Lloyds Banking Group, said: “UK farmers have had a tough year and having a delay to their payments will have caused further uncertainty and worry. The fund has already helped to reassure many farmers and keep their business moving, whether they are looking to buy livestock, invest in crops or simply manage their cash flow.
“The RPA, DEFRA and Scottish and Welsh Governments have announced they are doing all they can to make the vast majority of payments as soon as possible but support is also available through our network of specialist agriculture managers. We will be able to look at each customer’s situation and see how we can support them.”
The update to the Farming Fund is in addition to support being provided to farms and businesses affected by the recent floods. The Group has made a £100m fund available to waive arrangement fees on lending for those affected by recent floods, available to farmers and small businesses.
CASE STUDIES
Aberdeenshire
Stephen Allardyce from Tarland is still waiting to receive any of his basic payment subsidy. Facing storage problems for his grain crop at East Town Farm, Tarland, in Royal Deeside, Stephen turned to the Bank of Scotland and his suppliers for assistance.
Stephen, who rears 300 suckler cows, 300 breeding ewes and grows 900 acres of cereals, had a leaking roof in his storage shed that required £25,000 of repairs in order to be ready to store his grain. The farm also needed credit to help pay bills and suppliers so Stephen contacted his relationship manager at Bank of Scotland and received support from the fund.
Stephen said: “I had nowhere to put between 400 and 500 tonnes of grain, but I was facing a delay in my Basic Payment Scheme payment and I needed to pay the contractors to undertake the work. The other option was to sell the grain at a far lower price than I could get later in the year, which I wanted to avoid.
“The extension to my overdraft not only helped me fix the shed to store the grain and get a better price, but was used to pay suppliers and pay wages as well. I realised quite early on that I am could be facing a delay, so I had an early conversation with the bank and my grain merchant to make them aware I might need support, and it was helpful that the lending facility was quickly made available when I did need to apply.
“It’s important to look ahead in farming, not just for a few weeks but for a few months to see where things are heading. I had an inkling there would be a delay as soon as the CAP reform was announced alongside the new computer system. It’s a pain but it is at times like this you rely on the relationships you have built over a lifetime.”
Gloucestershire
Duncan Andrews, farming in partnership with TV personality Adam Henson near Guiting Power in the Cotswolds, grows 600ha of combinable crops alongside 200ha of extensive grazing under stewardship programmes, on which the duo keep 450 breeding ewes and 100 cattle.
The contracting business they run with a neighbouring farmer bought a £170,000 replacement combine harvester towards the end of last year, which incurred a £34,000 VAT bill that can’t be reclaimed until February 2016. This is a temporary cost this joint business is eminently capable of managing based on normal projected cashflow – but relied on both founding farm businesses paying their latest contracting bills, which in turn depended on each receiving their BPS payments in December, as expected.
However, one partner business was then notified by the RPA that it wouldn’t receive its BPS payment until the end of January or later, and the other was unable to obtain an estimate of when payment would be made.
Duncan says: “Lloyds Bank was attuned to the likely implications of delays to BPS payments early on, and was able to advise customers accordingly – hence during our annual banking review we compiled an alternative cashflow scenario.
“The contracting business was working comfortably within its overdraft limit, but rather than have our individual businesses pay our bills to it and cover any cashflow shortfall due to the VAT, and then have to deal with that impact separately, we consolidated the problem into the one area – creating a buffer in the contracting business to tide it over.”
The contracting business applied for and was lent £10,000 from the Lloyds Bank Farmers Fund, which has given it the working capital it needs to keep its operations going until the VAT refund is received and the founding businesses receive their BPS payments.
“We hope it’s a one-off, but it’s very helpful that Lloyds Bank has been farsighted enough to accommodate factors outside our control,” adds Duncan.
