United Kingdom-Cheap loans for farmers.

UNITED KINGDOM-FARMERS STILL SPENDING BIG MONEY.

HISTORICALLY low interest rates are welcome for the agricultural industry, whose way of life often entails substantial borrowing.

Prudent operators are rapidly locking into long-term deals at fixed rates of interest. The latest figures from Lloyds TSB reveal that there has been a four-fold increase in this form of lending in recent months.

Paul Spencer, director of agricul ture at Lloyds TSB, who is also a director the Agricultural Mortgage Corporation (AMC), said: "Many farmers are recognising that the current economic climate offers certain opportunities and are choosing to bring forward capital investment projects. They recognise that lower interest rates provide a sound basis on which to borrow money for long-term investments and business development."

Confidence in the agricultural industry is reckoned to be higher than in many other sectors, largely as a result of the 30 per cent decline in the value of sterling against the euro. This has made exports of UK products, especially beef and lamb, highly competitive in most European markets. However, the downside is that imports, including fertiliser and farm machinery, have tended to be more expensive, but Spencer reckons that the net balance is favourable.

He said: "With many lead indicators being positive, farmers are investing in the future through projects such as increased slurry capacity, improved grain storage, livestock units and machinery. The combination of well-structured and competitive finance in the right infrastructure will ensure that farmers are well placed for sustainable long-term growth."

But any borrowing decision involves a calculated risk and specialist financial advice is essential, according to Spencer.

He said: "Farmers should not forget that fixed interest rate and foreign exchange hedging strategies. The aim for any farmer should be to minimise the cost of borrowing, whilst retaining appropriate flexibility for their business."

Farmers still appear to have a high level of confidence in the land market, according to the latest survey from estate agents Savills, for the first quarter of 2009.

The figures show a fall in the area of farm land coming to the market in England and Wales, which has now returned to the levels of 2006 and 2007. This is in contrast to Scotland, where the supply of land offered for sale has risen by 61 per cent compared to the early months of 2008. Values across the UK have fallen by 1.4 per cent – in England the average arable farm on grade 3 has slipped by 0.9 per cent to about £4,500 per acre. In Scotland values have been static in the first three months of the current year.

Prospects appear encouraging, according to Ian Bailey of Savills. He said: "With supply constrained and demand for good commercial units still relatively strong from farmers and investors, we expect that values will regain the ground lost in the latter part of 2008 and the early months of this year.

"For the medium term, we forecast values will continue to grow, albeit at a much slower rate than that recorded during the past five years."