Bank of England says farm lending at new high

Bank lending to UK farmers rose to a new high in the third quarter of 2005, breaking through the 9bn barrier, according to latest figures from the Bank of England.

With further pressure expected due to delayed single farm payments, banks are urging farmers to discuss their cash flow needs.

Lending, at 9.124bn, is 500m more than a year ago.

Tim Porter, director of agriculture at Lloyds TSB, said he had expected the lending figures to increase, though the reasons for extra borrowing varied.

“Many better performing farming businesses are making significant investments but need to borrow to fulfil their plans.

“On the other hand, poorer performing businesses are coming up against it.

The major factor is the continuing weakness in commodity prices and escalating costs driven by high energy prices.

“Borrowing will continue to remain at high levels due to the delayed single payment.

We would urge farmers to discuss potential cash flow problems with us at an early date,” he said.

The 6% rise in lending reflects the general pressure on profits and cash flows across virtually all farm types, said Steve Ellwood, HSBC’s head of agriculture.

“This rise was in line with recent trends and our expectations.

The figures confirm that banks have provided increased limits in line with cash flows to allow farmers to continue trading as normal.”

But the likely impact of delayed single farm payments beyond the year end had yet to be felt, he added.

“The cost to the industry of extra interest paid on borrowings, or lost on investments, is likely to exceed 10m per month.”

Euryn Jones, agricultural policy director at Barclays Bank, said the sharp increase in borrowing heading into winter was concerning, because another large jump was likely in the fourth quarter.

Mr Jones said this would be when the impact of the switch to the new single payment was really felt.

“We are starting from a much higher base than I expected. Our managers are increasing overdraft facilities for an awful lot of customers.”

English farmers, who are unlikely to receive their SFP cheques until February at the earliest, would be hit hardest, he said.

NFU chief economist Carmen Suarez said the increase in borrowing was worrying, especially as the Bank of England figures might not tell the whole story.

“What I think we are seeing is an increasing level of debt with farmers buying more things on credit from suppliers.

“Just now people are coping, but if payments are delayed even more and interest rates go up again the picture starts looking much more gloomy,” she said.

fwbusiness@rbi.co.uk