Optimism is dawning down on the farm

Published on Tuesday 31 January 2012 00:00

Later today, the Scottish Government will produce their estimates of farm incomes last year. Giving a strong indicator that these will be very positive, a farm survey released yesterday showed farming prosperity rising to a 16-year high.

Presenting the Bank of Scotland report, Donald MacRae, chief economist with the Lloyds Banking Group, said that, in contrast to almost every other sector of the wider economy, optimism in farming was impressively high.

Most of the upbeat tone coming from the survey, which covered 465 farmers throughout Scotland, was based on the higher prices they have been receiving for their produce.

Some 87 per cent of respondents reckoned their businesses had been profitable in the past 12 months and this covered all sectors of farming. The figure rose to 95 per cent in the arable sector, with dairy farming at 86 per cent and livestock farming at 82 per cent .

Traditionally hill farming is the poor relation in the industry but even there some 79 per cent answered positively on whether their farm had been profitable in the past financial year.

However, the continued importance of farm subsidies in the hills emerged with the percentage of profitable hill farms going down to less than 10 per cent if the single farm payment was removed.

In contrast, more than half the arable farmers and a similar percentage of dairy farmers filling in the form said their business would still be profitable without farms subsidies.

Unsurprisingly, then, the CAP remained the most significant issue for the future prosperity for farmers, but with the export market now claiming a larger percentage of Scottish produce, the export market rose for the first time to number two spot in this particular survey.

Farmers have always been known as good recyclers on money and this was confirmed with a high percentage of those using their extra income to invest in new machinery, buildings, motor vehicles and livestock.

Despite this additional expenditure, some 30 per cent indicated they had no bank debt. This was a rise from last year’s survey figure where 22 per cent made no recourse to banks for even seasonal borrowing.

Sandy Hay, the head of agriculture with Lloyds Banking Group, said that initially this did not chime with the figures of a 7 per cent increase in bank borrowings to £1.6 billion by farmers last May.

He suggested that some farmers were expanding and in doing so partially increasing their borrowing while others were tightening their belts

MacRae suggested that the survey response on an expected bank base rate of 1.5 per cent next December was high.

“I fully expected it to be around the same level as it is just now – 0.5 per cent,” he said.

He was not however as optimistic on input costs, such as feed, fuel and fertilisers.

These have risen dramatically in the past couple of years and MacRae said he expected them to continue to increase.

But the majority of those taking part in the survey indicated they would be looking to expand their businesses in the coming year.

The one exception to this was in the beef sector.