Farming borrowing falls but costs increase

Officials at the Bank of England said a reduction in lending of 5.9 per cent was seen during December, bringing lending levels to 11.15bn at the end of the year.

The figures are in stark contrast with the record figures seen at the end of November 2009 when lending reached a peak of 11.84bn.

However, the fall in borrowing is being attributed to farmers receiving their Single Farm Payment cheques, some of which are higher this year due to falls in value of Sterling against the Euro. The news comes at a time when the costs of feed, fuel and fertlisers have all risen.

Euryn Jones, national agricultural specialist at Barclays, said: "It is no surprise that lending fell during December as it reflects the impact of Single Payments being paid in to farm current accounts. Our own data clearly reflects these trends where all sectors that receive a Single Payment showed a reduction in total debt.

"It is noticeable that lending to the unsupported sectors, such as pigs, poultry and horticulture only fell marginally during the month. Farmers have further benefited from the Single Payments this year being not only being paid earlier than previous years in England, but also because a weaker Sterling at the end of September meant that payments were higher, for the majority of farmers who received their payments in Sterling."

Mr Jones said that while there had been a fall in December, it came against a backdrop of strong rises in lending over the course of 2009, with most of the lending coming in the livestock and dairy sectors.

"The biggest increase over the year has been in lending to dairy farming businesses," said Mr Jones.

"This is due to a combination of factors, including the loss of more than a month's milk cheque and subsequent low milk prices suffered by farmers who supplied Dairy Farmers of Britain. High prices for heifer replacements has increased demand for working capital in this sector and some farmers are investing in capital expenditure programmes, for example for additional slurry handling facilities to comply with NVZ regulations.

"The beef and sheep sector has enjoyed record high prices during the year, but this has also led to increasing demand for working capital. This is particularly noticeable for beef finishers who frequently have to increase overdraft limits to pay for store cattle."

Meanwhile, statistics from the National Farmers Union input price monitor showed that feed prices have increased again with the national average price of lamb creeping up 16 per cent and dairy rations up 18 per cent to 176 a tonne.