No great surprise as agricultural debts hit record high

The UK agricultural industry’s total borrowing has risen again by a further £1.039 billion in the past 12 months and now stands at an all-time high of £9.218 billion, according to the latest Bank of England figures, released today (6 February 2006).

Delayed receipt of the Single Payment and poor commodity prices have put pressure on all businesses.

Commenting on the figures, Tim Porter, Director of Agriculture, Lloyds TSB Business Banking said:

"The rise is no great surprise. We estimate the delay in the SP has cost UK farmers £8 million per month or £24 million over the three months – covering interest paid to the bank on that part of the overdraft that can be linked to late SP payment or the interest lost on deposits that have been reduced for the same reason. Now that Defra has announced full payments from the SP Scheme will start at the end of February, with the bulk of payments completed in March, we should see improvements in liquidity."

There has been a gradual escalation in farming debt through the recent autumn and winter. At the end of December 2005 farming debt stood at £9.218 billion compared with £8.179 billion at the same time in 2004, an increase of 11%. The figure also represents an increase of £204 million or 2.2% over the September 2005 figures.

"Debt levels are at a peak as a result of a combination of non-receipt of subsidy cheques and the impact of crop sales being slow and prices poor. Evidence shows many farmers are hanging onto crops in the hope of increased prices at a later point albeit at a cost of extra interest payments," said Mr Porter.

"We have also seen deposit balances held by the sector drop reflecting the considerable squeeze on cashflow. The mood of farmers seems to be one of extreme caution given these pressures. Many are doing what they can to generate income from non-agricultural sources and through other business ventures.

"This has been the continuing theme at a series of Developing Income events that Lloyds TSB Agriculture and the AMC have been hosting up and down the country over the last few months. Business survival is the key with those farmers who are determined to remain in the industry actively looking for the means to increase their income," he said.