Lending to farmers was in bad shape before the EU referendum and now farmers need funding more than ever, according to online business loan supermarket Funding Options.
The business loan matchmaker reported a collapse in bank lending to farmers ahead of the June 23 vote and said the situation has raised real concerns about the agricultural sector.
Net new lending by UK banks to the agricultural sector fell to minus £23m in the first quarter of 2016 compared with £500m in the same period in 2015, said Funding Options.
It added that in addition to difficulties in securing borrowing, the agricultural sector now faces a number of significant headwinds that would result from the UK leaving the EU.
Conrad Ford, CEO of www.FundingOptions.com, said: “Farmers in Yorkshire now need to think carefully about their finances. What level of borrowing will be on offer from the banks is far from certain.
“The EU referendum result will have come as a surprise to many. Yorkshire’s farmers and their suppliers need to do contingency planning on the basis that farm payments from the EU may go through a substantial change, and any replacement funding by the UK Government has not been decided and will be no doubt be subject to intense lobbying.”
Funding Options said it is vital that UK agriculture has access to sufficient funding for investment ahead of a potentially difficult period and that alternative business lenders can fill some of the gap.
UK farms receive a range of subsidies under the EU Common Agricultural Policy depending on the size of farm and land use.
It is unclear the extent to which these subsidies would be replaced in an independent UK as the Treasury would control such spending directly and be able to make cuts or reallocate how subsidies are distributed.
In addition some UK farms, especially arable farms, employ a significant number of migrant workers.
A weaker pound makes the UK a less attractive destination for seasonal migrant workers in the short-term which could lead to higher wage costs.
Funding Options said that higher wage costs for farm workers could be compounded in the long-term by the end of free movement of labour between the UK and the EU potentially leading to labour shortages.
It added that investment by agriculture businesses now will help weather the gathering storm and will put agricultural businesses in a stronger position to overcome any difficulties they face as a result of Brexit.
It claimed that with traditional borrowing hard to secure, investment for specific improvements is on offer from alternative lenders.
“Farmers need investment planning now more than ever to prepare for the potential withdrawal of EU subsidy and upheaval in the labour market,” said Mr Ford.
“It is very difficult to predict exactly what the UK agriculture sector will look like in five years’ time so farmers need to be pro-actively considering their business models and options.
“There are huge variety of businesses within the agricultural sector and so there is no one-size-fits-all approach to investment.
“The agriculture sector contributes billions to the UK economy and the importance of a well thought through response to Brexit cannot be overstated.”
He added that arable farmers need to invest in advanced machinery in order to boost yields and productivity while smaller farmers should consider investment that allows production of higher margin produce such as food with improved provenance and traceability or organic food.
Funding Options said that diversification away from purely farming is one option as farm shops and leisure attractions can work well.