Land & People reported only a few days ago how the banks were doing very nicely out of the succession of crises hitting British farming in recent years. We can now tell you just how nicely. According to recently disclosed Bank of England figures the current level of lending to agriculture is now at an all-time high of £10.6 BILLION and growing.

Even more alarming is the revelation that this figure has increased by almost one billion pounds in the last year alone!

To get some idea of what £10.6 billion worth of debt equates to we’ll refer to this year’s anticipated bumper wheat harvest. At the present time and subject to the weather, it is estimated that a record 16 million tonnes of wheat will be harvested by the end of the month. Now, although the price of top quality wheat is around £140 per tonne the poorer grain, to go as animal feed, will probably reduce the overall price per tonne to around £100. In other words Britain’s bumper wheat harvest is estimated to be worth around £1.6 billion.

Taking into account the cereal harvest and all other agricultural production this year, it is probable that this has a value of around £12 billion. In other words the current level of indebtedness of the industry to the banks approximately equates to the entire annual agricultural output of the industry! Put another way, the banks own the harvest �“ not just of wheat but of all other agricultural commodities!

But, in a very real sense, the problem is even worse - as this is interest bearing debt that is serviced by interest payments that probably exceeds half a billion pounds per annum!

Returning to the cereal producers for a moment; it is likely that many will make a tidy profit this year �“ as opposed to breaking even last year, and the year before that. They, of course, are the lucky ones �“ for they will have the luxury of being able to choose whether to reduce their bank borrowings, to invest in new plant or a little of both. Other farmers, particular livestock producers, won’t have that luxury �“ as the high price of feed combined with rocketing diesel and other costs means that most will make a loss. To some extent the same can be said of dairy farmers, where the profit made from increased milk prices has been eroded by higher operating costs.

The bottom line is clear, whilst the industry as a whole is “soldiering on” �“ some farmers better than others �“ it is doing so whilst servicing an extraordinary level of debt. This is manageable during times of bumper harvests �“ but what is going to happen when harvests are not so fruitful and when the Bank of England base-lending rate is ratcheted significantly upwards from the current 5%?

Land & People asks: How many well-run family farms could survive a substantial and prolonged base-lending rate increase in a poor agricultural year we wonder? Furthermore �“ should the economy continue to decline and the banks apply “the squeeze” with a vengeance �“ with this Labour regime come to the aid of the industry or support the banks? Silly question really �“ because on recent past experience we all know the answer to that one!