Debt up ‘but it could have been worse’

The head of policy at NFU Scotland yesterday, commenting on figures showing that Scottish agriculture had increased its borrowing by £53 million to £1.72 billion last year, said the surprising thing was the increase had not been bigger.

Jonny Hall said the Scottish Government figures covering the year to the end of May 2013 were not a surprise: “Given that Scottish agriculture has had to endure some of the worst weather on record the increase in borrowing was expected.”

The hugely challenging physical and financial circumstances, with volatility in prices both for farm inputs and for produce, had made farm planning in recent times a very difficult exercise, he added.

“With the impact of a washed-out harvest last year and a horrendously long winter as well as a late spring on cash flows, it is surprising that borrowing has not increased by more,” he said.

The question he raised after seeing the latest indebtedness figures that Scottish farming now has to the banks was what the additional borrowing had been used for.

And he suspected the money was being used by farmers to cover increased costs in their businesses rather than building up resilience. Backing up that assumption, he referred to a survey carried out by the union earlier this year where evidence of hefty arrangement fees for increased loans were being charged by the banks.

In publishing the figures, the Scottish Government commented that this was the fifth consecutive annual increase in Scottish farm debt but the “increases remained within the typical fluctuations of the 21st century”.

The statement also highlighted the fact that, in real terms, the latest figures represented a decrease of 2 per cent since debt levels stabilised in 1990. Prior to that time, real-term debt peaked in the mid-1980s at around £2.5bn, before high inflation rapidly eroded the value of the sector’s outstanding debt.

A closer analysis of the debt shows that 88.3 per cent of the borrowing was incurred by owner occupiers and only 8.3 per cent was on account of tenant farmers, who do not have the collateral of land. The remainder of the borrowing was by agricultural contractors.