The Courier & Advertiser (Perth and Perthshire Edition)
Banker’s view of cash-flow pressure
Farm cash flows are “under a little bit of pressure at the moment”, acknowledged Royal Bank of Scotland’s chairman of agriculture Jimmy McLean.
At a press conference to mark RBS’s 35th year as major sponsors of the Royal Highland Show, Mr McLean noted that most commodities were trading at least at a 20% discount over a year earlier.
Cattle were the exception at only a 1% reduction, but the whole industry was suffering from marketing difficulties and the impact of CAP changes, compounded by unfavourable currency exchange rates. Strong sterling against a weak euro would shave between 6% and 7% off support payments.
He said, in Scotland, lending to farming has increased by around 5% per annum over the last two decades.
“In 2014, however, the increase was 8% over the previous year,” he said.
However, Mr McLean remained sanguine, pointing to the industry gearing of debt to assets, which stood below 7%.
His colleague and director of agriculture Roddy McLean noted total income from farming in Scotland last year was £687 million and the main support payments amounted to £491m.
“We are aware of how important these payments are, and RBS will be offering bridging loans from the first week in December if there are delays,” he said.
These would be free of fees but limited to 60% of the previous year’s payments. Interest rates would be the same as the farm was already paying on its borrowing.
RBS economist Marcus Wright said; “Currency exchange rates can hurt at the margin, but it is the lack of demand which is the main factor.
“The slowdown in China has been marked, but rebalancing in supply and demand could come quickly.”
Mr Wright could not see sterling to euro exchange rates moving much in coming months. “It needs a big change in policy for that to happen and that looks unlikely,” he added.