24 April 2015

Barclays Bank, Modern Farming

Mark Suthern, Head of Agriculture, Barclays wanted to give growers an insight in to how the financial sector viewed our industry.  He wanted to cover a number of key points, business planning, land prices, interest rates, foreign exchange, future funding and challenges.

He began by highlighting what he currently read the situation to be.  “It would appear the watchword for agriculture in 2015 is Volatility – for some agricultural markets this is nothing new, the pig industry has long been used to fickle markets for example. The fluctuations in the UK markets for produce and stock are driven by global supply and demand, clearly something over which UK Agriculture has little or no control. Therefore a business which has honed its cost of production to as low as possible will feel the chill of negative market later than others producing at a higher break even. When global demand increases and drive prices back up, that same business will feel the benefits of stronger markets sooner than others who have higher costs of production”.

With many believing that volatility is here to stay within the UK agricultural sector, Mark felt this is the time to really focus on production costs and to make businesses as streamlined as possible. Mark talked about what could constrain a business and explained that there were several key factors, limited market for the product, lack of planning and information, lack of competitive edge, poor management and lack of available cash or capital.

A big factor to take into consideration for Farmers and Growers in the UK is the cost of land, prices have risen exponentially and coupled with the unstable foreign exchange recently has caused extra stress on an already stretched industry.

Mark said “Britain’s trade deficit widened in February, as economists said the strong pound and weak Eurozone demand was acting as a “straitjacket” on exporters.” The decline of CAP, fluctuating markets and an increasing population all contributed to volatility.

Whilst Mark concentrated on telling the audience the hard facts, although his conclusions were somewhat of a comfort to the sector.  Barclays Bank, who have been trading for over 250 years viewed the Agricultural Industry as low risk.  He highlighted three points to substantiate this;

The bad debt profile of agriculture is good in comparison to other industries

The track record of agriculture in previous recessions is excellent.

Core security which underpins agriculture lending has not suffered in line with other property

In general the challenges facing UK agriculture in the next few years would include management of supply costs and prices, supplying English products in a global market, CAP, interest rates and weather, which includes looking at resources such as water.  Mark has had 25 years experience at Barclays much of that time in Agriculture, he made it clear that he was not an agronomist but was passionate about the potential of ‘Modern Farm Businesses’.