Monday 30 July 2012

Funding for Farmers

During these straitened times, we often hear that one of the main concerns for businesses is the difficulty of borrowing money, but for farmers this is probably less of a problem than for other sectors of the economy. This is because farming has generally prospered in recent years as commodity prices have risen; this has been reflected in higher farming profits, except perhaps in the dairy industry, and soaring agricultural land values.

Consequently banks are more confident to lend to farmers although even then it has to be said they are certainly not lending indiscriminately and are looking at every business case very carefully. In this context I have had a reasonable amount of experience drawing up both business plans for presenting to banks and carrying out valuations to support lending proposals and what is clear is that money is being lent but only on the back of good businesses. Even then the interest rates being offered are much higher than they were four or five years ago despite the historically low Bank of England 0.5% base rate The reason for this is that all banks have had to widen their margins to increase the capital they hold in order to put themselves in a stronger position to withstand another financial crisis without having to be bailed out by central government. Thus it must be of significant interest to hear that one bank which specialises in lending to farmers, the Agricultural Mortgage Corporation (AMC), has negotiated access to a multi million pound European Investment Bank (EIB) investment fund which can effectively subsidise eligible loans with a significant discount of 0.65 % off the AMC’s normal loan margin.

"Our access to this fund allows us to effectively subsidise loans for a wide range of farm improvement and diversification projects including building works and livestock housing, machinery and equipment purchases, farm shops, milking parlours and farm energy schemes. The total fund pot is limited and we have already seen a good level of interest. Farmers with a particular project in mind are urged to contact their local AMC agent," said Jonathan Allright, Head of AMC.

As one such agent I would suggest this scheme provides an opportunity for farmers who are considering expanding or investing in their farm to access favourable loan rates at a time when interest rates are already historically low. I see it as an important tool to help reduce the effects of price fluctuations and input cost volatility.

The minimum amount borrowers can apply for in the scheme is £25,500. The discount is available on loans of up to 10 years for projects that have a definite start and end date and must complete their loan by December 2013.

A wide range of projects within the scope of the scheme and I suggest farmers should consider using this funding to strengthen their farm business for the long term. Indeed with the demands to produce food for a growing world population increasing, this funding offers a real financial boost at an important time for many farm businesses Should anyone have any queries regarding this scheme please contact James Stephen.



James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells

T: 01749 683381
E: james.stephen@carterjonas.co.uk

Friday 27 July 2012

Testing times for arables farmers

As I pen this article I am looking out of the window at blue sky – a rare commodity this summer and with the forecast looking a little more positive, maybe the worst of the summer weather is behind us which will not come a moment too soon for our arable farmers.

Indeed, I have already seen the first crops of winter barley being harvested and if the weather was to stay fine for the next month or so this could prove to be a profitable year. This is because cereal prices have increased sharply in the last month due to warnings for poor harvests in the United States and Russia, both due to drought conditions.
As a result the spot price for old crop wheat has risen to over £210/tonne and prices for new crop wheat are up to around £180/tonne and on the futures market up to £190/tonne for delivery in November this year.

At these prices our arable farmers should be able to make a healthy profit provided of course the weather does dry up for a reasonable period. This will enable heavy machinery to get in to the currently waterlogged fields and also hopefully dry out the grain sufficiently so that it will not need to go through the time consuming and expensive process of having to be dried before storage.

However, the wet weather has been very testing and some crops have suffered from fungal diseases in particular. It has been difficult to keep such diseases under control because there have been very few opportunities to spray the crops either because it has been too wet or too windy. So even though the cereal prices may be high it remains to be seen how yields will have been affected by other factors such as disease and the generally wet weather.

The prospects for arable farmers are of course in stark contrast those of their dairy farming neighbours who are suffering badly as milk prices fall as sharply as arable prices are rising. This has driven some to direct action and as many will have seen on the news this has manifested itself in this area with farmers blockading the Robert Wiseman Dairy just of the M5 near Bridgwater.

This only goes to demonstrate how complicated the farming industry has become with droughts in the United States benefitting our arable farmers through increased cereal prices while a fall in the price of cream on the world market has stimulated the latest controversial cut in milk prices. Sadly these are all things over which our farmers have little or no influence and so all they can do is manage their own business as efficiently as they can and then just hope for the best with those things they cannot influence – such as the weather. 

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells

T: 01749 683381
E: james.stephen@carterjonas.co.uk

Monday 2 July 2012

James Stephen comments on RPA Business Plan

The Rural Payments Agency (RPA) Business Plan 2012/13 was published last week and the chief executive officer Mark Grimshaw said: “Thanks to the hard work of our people and the support of our industry partners and Defra, I believe we have now turned a corner on our way to becoming a trusted, efficient and effective organisation.

“Farmers and food producers rely on RPA support to make their businesses more competitive and, thereby, our rural communities more sustainable. For their sakes, there will be no let-up in our drive to improve performance for our customers and the tax-payer in 2012/13.”

So, at last the RPA seems to have made some substantive progress in its performance, although this is not a moment too soon following the debacle of the introduction of the Single Payment Scheme in 2005, the aftermath of which is still haunting some farmers.
For instance I am aware of applicants who still think they are owed money back to 2006 and so it must be welcomed that the RPA achieved their best performance to date in 2011 and are promising to do better next year.

Indeed their pledge is to pay 91 percent of claimants and 84 percent of value for the 2012 scheme year by the end of December 2012 but there is no doubt their next challenge will be to ensure that when the CAP is next reformed in the next couple of years they do not make the same hash of it that they achieved last time.

This was reiterated by the chief executive of the Tenant Farmer’s Association, George Dunn who said: "The performance of the Rural Payments Agency continues to improve under the leadership of its chief executive, Mark Grimshaw.

“The TFA is pleased to see that the RPA has been set tougher targets for the coming year particularly in relation to payments under the 2012 Single Payment Scheme. The big challenge ahead for the RPA will be implementation of whatever is eventually agreed within the next CAP reform.

“The TFA is in on-going discussion with the RPA and its parent department, DEFRA to ensure that the mistakes made with the implementation of the last CAP reform are not repeated this time round."

To be fair to the RPA the manner in which the scheme was introduced in England by our government was particularly complicated. So, I hope that when the next reforms are agreed at a European level, we do not decide to overcomplicate the regulations at a domestic level so as to give the RPA a fighting chance of making up for their mistakes in the past which cost both farmers and the UK tax payer millions of pounds.


James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells

T: 01749 683381
E: james.stephen@carterjonas.co.uk