Farmers in expansion mode

borrowings often required to fuel expansion and transition, the potential variable costs of borrowing can be often overlooked.

While an improving economic picture has so far been associated with a stronger currency, there are also implications for interest rates.

In the case of Europe, this is likely to mean higher rates going forward.

Since the introduction of quantitative easing (QE) to pump more cash into the financial system, European interest rates have been on a steadily lower course.

However, nearly three years after the European Central Bank introduced QE, we are slowly beginning to see a move towards policy normalisation whereby the amount of assets purchased by the European Central Bank (ECB) under their QE programme each month is decreasing.

Borrowing costs

This is seen by some commentators as a prelude to increasing interest rates.

This was certainly the case in the US when the Federal Reserve reduced asset purchases and after a short period of time hiked interest rates.

Since 2015, interest rates in the US have risen by 1pc. Assuming we see a similar move in Europe over the coming years, borrowing costs could increase quite sharply.

For some farmers, such an increase in repayments could end up being quite large and in some cases avoidable.

With that in mind, farmers who are undertaking large scale investment should consider all viable options including fixed-rate finance packages to ensure that they don’t fall victim to adverse interest rate movements.