A report from Scotland’s Chief Statistician has found that the debt levels of Scottish farms are now at their highest level since records began in 1972.
A survey of the main banks and other lending institutions showed outstanding loans to Scottish farms rose by £177 million in the year to May 31, 2016. Total outstanding loans to the agricultural sector amounted to £2.20 billion. Accounting for inflation, this was an increase of eight per cent since May 2015.
In addition to bank loans, farms have an estimated £1.4 billion of liabilities, related to hire purchase, family loans and other sources. About 50 per cent of total liabilities are long term loans, a percentage that has been slowly increasing over time.
Commenting on the figures, Alistair Dickson, restructuring partner at RSM in Scotland said:
‘These latest figures are alarming. Farmers are generally known to be asset rich and cash poor however this increasing level of debt will be impacting on the asset rich perception.
‘The implementation of the new computer system has led to delays in payments and many farmers will have had to resort to bank funding to assist with cash flow. For many farmers normal bank funding channels will be closed and they will have had to resort to asset backed lending or borrowing from friends and family on an informal basis with the promise of repayment once farm payments are received.
‘Changes are afoot in respect of Brexit, but subsidies will continue to be needed in the sector.
‘Like businesses in other sectors, unless the farmers get back to balancing their income and expenditure, there comes a point when the debt burden is too much and the farm will fail. The secured lenders may be repaid through the disposal of valuable land but many farmers are not in this situation and could be one winter away from failure.’