Banks have an important role to play in supporting agriculture and helping farmers manage risk but businesses must become more resilient if they are to survive swings in volatility, a House of Lords inquiry heard.
Taking evidence from agricultural managers of HSBC, Barclays, NFU Mutual and European Investment Bank (EIB), the inquiry heard there was a wide range in the competitiveness and profitability of UK farming businesses.
It came as Defra estimates showed some businesses could expect to see income falls close to 50 per cent this year due to lower prices across the majority of UK farm commodities.
The Forecast of Farm Business Incomes for 2015/16 cover the 2015 harvest and include the 2015 rate of Basic Payment, which is expected to be 8-9 per cent lower than the 2014 payment for all farm types except Less Favoured Area (LFA) grazing livestock.
The committee heard the delay to direct payments was a ‘large cause of concern’, but that farmers could do more to cushion their businesses from dips in cashflow.
Allan Wilkinson, head of agriculture, HSBC, said reform of the CAP could help with this.
“We need to look at something which helps the industry with volatility. The industry has got to be in a far more resilient place at the point in the cycle where it’s low, so it can take advantage of the point in the cycle when it is high.”
Oliver McEntyre, national agriculture strategy director, Barclays Agriculture, said volatility in the sector was ‘like a tightening screw’ on farmers.
He added short term Farm Business Tenancies made it difficult for new entrants and younger farmers to borrow money.
“If we’ve only got an eight year tenancy it would be irresponsible to lend over 25 years because that business may cease to exist.”