In hock to the loan sharks is not a serious solution

Richard Lochhead said farmers were facing a 'perfect storm'

That’s the question everyone’s been asking since the scheme to help tide farmers over until they get their support money was announced at the NFUS’s annual conference last week.

While it might not truly see farmers enter the seedier end of the financial system, the need to get some wonga out to those in dire straits who have no other option for finding a quick quid to pay off mounting debts does highlight the current air of desperation on many farms.

Banks have stood by the industry, but there are always going to be those with complicating factors which make keying into the normal lending facilities all but impossible – including new entrants with little or no financial track record.

It’s been quite a few years, though, since a government representative has brought a handful of beads along to the union’s annual meeting to keep the natives happy – but the current state of affairs is almost without precedent, and certainly so within Richard Lochhead’s long tenure.

The cabinet secretary said farmers were currently facing the “perfect storm” of bad weather, rock-bottom prices and a revamp of the Common Agricultural Policy (CAP), all of which have combined to empty bank accounts and disrupt cashflows.

Rural economy ‘grinding to a halt’ over cash delays

The industry, however, has always been at the mercy of the weather – and it is becoming used to the vicissitudes of the marketplace, with fluctuating demand and exchange rate volatility having massive impacts on profitability.

Even the endless rounds of CAP reforms have become part of the moving target which farm production and income is nowadays geared towards. What has changed this winter is the sudden and catastrophic breakdown of the timing of farm support payments.

Now, rather tactfully, Lochhead didn’t press the message that, under EU regulations, farm support measures don’t actually need to be paid out until June. He didn’t even labour the fact that his office’s track record of making payments during early December in previous years had pretty much led the field in Europe.

From the industry’s point of view, a bit like feeding a shed of cattle, if they’re used to getting their tea at four o’clock, there’s a hell of an uproar if it gets left until five – and to disrupt a previously reliable element of a business’s cashflow can be far more catastrophic than having a rumbling belly for an extra hour or two.

Initially farmers were told that support might be delayed by a few weeks – and many businesses decided they could probably hold their breath, stack the bills behind the clock and live off credit for a short spell.

The immediate response has been to batten down the hatches – and the wheels of the entire rural economy have ground to a halt. To get it started again, offering bridging loans might make some sort of sense, as it does from a payment process point of view. Initially those suffering severe cashflow problems were told they would be fast-tracked though the system but this diverted attention and resources away from proceeding through applications in a logical manner.

So, with money now available, attention must be briefly focused on devising a plan for deploying the £20 million earmarked for guaranteeing loans – and then to focus purely on processing the claims of the 60 per cent of producers who are still to get their first instalment.

But in the longer term scrutiny must fall on the new IT system which, together with other aspects of delivering the new CAP, is set to cost more than £180m – or around £10,000 per applicant.

Chaos, accompanied by a huge financial overshoot, seems to be accepted as part and parcel of any new government computer IT system – while the costs to businesses are ignored. At the NFUS conference, someone said that if a new tractor didn’t work he would demand that it was either fixed immediately – or his money back. We should expect the same attitude to be taken by government.