The changing landscape of rural agricultural finance

By Rob Suss, director

Of all UK industries, farming could lose or gain the most from Brexit. At worst, Brexit could devastate the farming sector; on average, 60% of farm incomes come in the form of EU subsidies. A report by Informa Agribusiness Intelligence estimates that without subsidies 90% of farms would collapse and land prices would crash.

The UK agricultural sector is facing testing times, and bids to diversify are being explored by farmers and land owners across the country. UK Agricultural Finance is an enthusiastic supporter of farm diversification and was formed to meet the demand from farmers for short- and medium-term lending after the banks cut their specialist lending teams during the financial crisis. This is an area that requires specialist knowledge and time to perform traditional face-to-face underwriting.

The Department for Environment, Food & Rural Affairs has recognised that farming requires high levels of investment and that the lack of sufficient funding is a major threat to small businesses. Lenders that know rural property and rural businesses, their driving factors and the many challenges they face, but also their appeal, are key to supporting agricultural businesses. More importantly, it is necessary for lenders to understand lending against agricultural land for enterprises where a box-ticking approach will simply not work. A proactive agricultural lender will work with leading experts in agricultural valuation, security, restructuring and insolvency to assist in risk management and underwriting, and to ensure swift, informed and fair decisions.

UK Agricultural Finance’s core product is a bridge finance loan, but we have recently announced the launch of a medium-term, lower-rate loan product providing finance up to seven years, growing the suite of solutions that NACFB Members can access for the financing needs of their rural clients. There is a wide variety of agricultural lending services that include the purchasing of land, livestock finance, recovery and restructuring, renewable energy and agricultural property.

British farmers are increasingly turning to technology to increase yield, but such technology does come at a cost. Many farmers in Britain would understandably shy away from the cost of setting themselves up in this manner, but with a post-Brexit world likely to mean British farmers having to be more competitive, it’s now a good time to start getting ahead of the curve.

New ways of farming that increase the financial yield per acre can bring other benefits, such as being more eco-friendly and sustainable. Currently, British farmers are not competitive with the Netherlands, which is the world’s second largest global exporter of food after the US. However, while US food exports are almost twice the value of the Netherlands, the Dutch produce this from 0.4% of the land area of the US.

We are delighted to be Patrons of the NACFB and to have participated at the NACFB Commercial Finance Expo in June 2017, where we met many of its Members. We are looking forward to working closely with the NACFB’s Members and helping them find solutions for the massive demand for rural finance and any challenges their clients may face.