Agriculture not immune from recession backlash

FARMING, having avoided the worst impacts of the recesssion so far, might not be so immune from the next phase of the recovery process, a leading banker has warned.

Clydesdale Bank and Yorkshire Bank’s divisional director for specialist business, David Douglas, said the financial measures coming out of the Chancellor’s briefcase, such as increased taxation, would undoubtedly impact on consumer spending.

While this might not mean any dramatic reduction in food spending, it could well make it more difficult for producers to negotiate increases from the retail end of the chain.

“Household disposable income will be hit, and this is where it might hit agriculture,” he said.

This was the business environment which producers would operate in for the next few years and this put a premium on good forward planning and management.

Farmers, he said, should be reviewing plans and provisions for pensions, business succession and capital taxation.

Mr Douglas insisted credit had remained generally accessible for farming businesses, but as far as Clydesdale was concerned, lending was based on what a business could repay and not the asset value of the farm.

Positive views
“When we say no, we offer positive advice as to how the business could be made stronger, putting it in a better position to manage borrrowed capital,” he said.

Clydesdale Bank and Yorkshire Bank’s lending to the industry increased by 16 per cent in the 12 months to the end of September. Mr Douglas acknowledged, sectors of farming had fared better than others and within sectors, some producers fared better than others. But this was due more to normal supply/demand issues, than the effects of the world economy.

The ‘horn/corn’ balance was never better illustrated than by the fact that a good cast ewe could now be worth more than a tonne of barley, and Mr Douglas did not predict any dramatic improvement in the fortunes of arable farming in the near future. However, he did view the start-up of new bioethanol plants as positive for cereal growers.

He said Clydesdale’s potato growing clients were, in the main, so specialised, they had invested in the better years and the vast majority would be able to ride out leaner times.

He was also fairly positive about dairy farming’s prospects.

“Some individual producers are again actively reviewing whether to continue in the industry.”

While he felt there would be no levelling off in the exodus from dairying, he believed the sheer scale of expansion being planned by some, would go a long way to holding total volume. And anyone looking to sink a large amount of money into expansion, would be wanting to see evidence of a premium from milk buyers for volume and commitment.

* David Douglas was formerly head of rural business. At the same time as expanding his role, Clydesdale has appointed Iain Clark to the new post of managing partner, Agribusiness Development.

18 December 2009