Debt can offer relief to farmers and rural landowners suffering acute pressures on income
Large numbers of rural businesses are seeking to fix costs as rates rise. There are deals to be had, if you know where to look, says Bradley Smith, Head of Agri Finance at Knight Frank Finance.
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Farmers and rural landowners are being squeezed from all sides.
Input costs have risen steeply and recent agricultural policy changes are heaping pressure on incomes. Drought has threatened production. Meanwhile, sentiment among consumers is close to record lows, suggesting a knock to demand may also be around the corner.
This month’s 0.5% rate hike from the Bank of England, the largest since the mid-1990s, was the last thing the industry needed.
Sector-specific borrowing data is hard to come by, but based on my 15 years working with farmers, I would bet that around 80% of debt that farmers hold is on variable rates. That’s before you consider overdrafts, which tend to be utilised throughout the industry, all of which will be subject to variable rates.
Appetite to borrow among both farmers and landowners remains undimmed, however. The peaks and troughs of recent months have made clear the benefits of diversification. Reliable “non-farm” income can take the sting out of a difficult period, but often you need to invest before you can earn.
All of this is understandably fuelling a clamour to move debt onto fixed rates. Farmers are subject to so many floating costs that many want to introduce more certainty onto their balance sheets, even if it takes paying a modest premium relative to variable debt.
There are silver linings. Though the cost of debt has risen, it is still cheap by historic standards. Banks still look favourably on the sector, particularly during periods of economic upheaval – agriculture underpinned the earliest human settlements, so there’s always the knowledge that the industry has weathered worse than the crisis of the moment.
The market for debt can be a confusing place, however. Scores of different lenders are offering different rates for different projects. Some like construction, others like diversification, while others still want to lend for equipment purchases. It pays to do your homework, or speak to a professional – sure the costs have risen, but there are deals to be had if you know where to look.