Scotland’s outstanding farm debt rose by more than £53 million over the last year.
Scotland’s chief statistician yesterday said total outstanding loans to the agricultural sector amount to £1.72 billion.
Made available via the Survey of Bank Advances to Scottish Agriculture, the results for the year ended May 31 equate to an increase of 3% in outstanding agricultural debt to the banks since May last year or an £11m ‘real-term’ rise of 1% over the 12 months, when taking inflation into consideration.
Some 88.7% of the money owed was attributable to farmers who are owner-occupiers, and 8.3% to tenant farmers, while the remainder was split 2.2% to agricultural contractors and 0.8% to livestock salesmen.
This snapshot shows relatively little change from 2011-12, with owner-occupiers owing 89.2% of the then £1.67bn total outstanding, tenants 7.7%, agri contractors a flat 2.2% and livestock salesmen 0.9%.
However, the distribution change compared to 1980, when the survey was first collated (owner-occupiers 80.8%, tenants 15.1%, agri contractors 1.5% and livestock salesmen 2.7%) is much more apparent, reflecting the ever-changing structure of agriculture in Scotland.
With only 76% of Scotland’s total agricultural area (excluding common grazing) currently owner-occupied, this continuous shift in data suggests owner-occupier farmers are now more heavily in debt than any other recipient, according to the Scottish Government.
Despite difficult lending conditions in the economy, this is the fifth consecutive annual increase in Scottish farm debt, although, these recent increases “remain within the typical fluctuations of the 21st century”, a Government spokesman said.
The latest figures represent a real-terms fall of 2% since debt levels stabilised in 1990. Real-terms debt peaked in the mid-1980s at around £2.5bn, before high inflation rapidly eroded the value of the sector’s outstanding debt.
Related evidence from the Bank of England shows that this May the UK agricultural sector (including hunting and forestry) was the only UK business area to see considerable rises in outstanding debt over the last two years.
Most other business sectors saw successive reductions in debt levels.
NFU Scotland director of policy Jonnie Hall said, considering Scottish agriculture endured some of the worst weather on record during this period, the rise in borrowing levels was not unexpected “given the hugely challenging physical and financial circumstances”.
“Volatility in output prices pitched against escalating input costs has made farm business planning in recent times a very difficult process,” said Mr Hall.
“Add in the impact of a washed-out harvest in 2012, a horrendously long winter and a late spring on cash flows, then it’s almost surprising that borrowings have not increased to a higher level.”
He said this begs the question as to what the borrowings to Scottish Agriculture Plc are being used for.
“I suspect much of the borrowings, and certainly increased overdrafts, are being used to cover increased operating costs rather than building future financial and physical resilience into businesses,” he said.
“Arrangement fees and the cost of securing those loans were also an issue for many of our members when we carried out our banking survey in March.
“That said, we are hopeful that farm businesses may be able to re-focus on growth and investment if we continue to have a good harvest this year and we return to a more traditional and stable operating environment for the industry in 2014.”
farming@thecourier.co.uk