Over ten years ago I was involved in an international project on farm finance as part of which I interviewed the agricultural finance specialists in all the banks in Britain and Ireland. One thing that came across was that banks competed to lend to farmers because it was seen as a lucrative market with very secure assets.
Figures from the Bank of England show that agricultural borrowing in the UK is at an all time high, £11bn at the end of September, compared with £9.94bn at the end of 1997. The debt burden was, however, offset by an increase in farm incomes. According to Defra, the average income was about £48,000 in 2007-8, about 40 per cent higher than the previous year, owing largely to higher prices for cereals and milk.
The falling exchange rate may also benefit farmers, given that subsidies are denominated in euros (the notorious 'green pound' which was one of the most complex aspects of the CAP is no longer with us). The estimated €3.8bn (£3.1bn) in subsidies this year should be worth more. Sterling's weakness may make exports more attractive. In 2006, the last year for which figures are available, the UK exported £10.5bn of farm products.
Agricultural land is still fetching historically high prices, giving farmers an equity cushion. Borrowing is much lower than in other sectors. The total value of farming assets in the UK is estimated at around £150bn, giving a gearing ratio of less than 10 per cent, far less than the rates other industries have come to see as normal.