Farming: Farmers warned on new phase of downturn

Although the farming industry has so far escaped the economic recession, a warning came yesterday from a top banker that the industry may now begin to feel the brunt of the financial downturn as it moves into a third phase.

Speaking at the annual conference of the Fellows and Associates of the Royal Agricultural Societies at Ingliston, David Douglas, divisional director of Clydesdale Bank, said, "In 2008 and 2009 we saw difficulties in the property sector. In 2010 it was the manufacturing sector which suffered most.

"This year personal budgets, unemployment and the retail sector are feeling the pain. The first two phases more or less passed agriculture by but this current one will impact more."

However, he said farming's secure asset base and its inherent stability as a source of essential foodstuffs meant businesses would continue to enjoy reasonable borrowing terms and funding availability this year. He qualified this by saying there might be a more limited choice of funders than in the past with some lenders moving in and out of the market.

On the euro-sterling exchange rate he differed from most market analysts who foresee a strengthening of sterling. He said: "If, as a farmer, you see the euro heading back towards 90p then that could be the time to look seriously at locking in your Single Farm Payment."

Douglas reckoned that while conventional overdrafts would still form the core of farm borrowing some farming businesses were exploring additional areas of financing. "This includes increased funding from family members and an admittedly limited number of independent entrepreneurs who may be willing to back businesses."

From the same platform Jimmy McLean, head of agriculture at Royal Bank of Scotland, pointed out that food still represented only a tiny fraction fo family spending.

"By last Tuesday - the first week in February - the average person had earned enough to feed him or herself for a year. Food costs are still only around 9 per cent of household budgets."