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The recession and what it means for agricultural land, land owners and the farming industry

With economies around the globe faltering and the banking sector in turmoil, what can farmers and agricultural land owners expect as the country slides towards recession.

(Source: Farmers Guardian, 07 Oct 2008)

Recession would be a double-edged sword for agriculture

The banking industry breathed a collective sigh of relief this week as the Government announced a £500 billion emergency funding package which promises to pull it back from the brink of collapse.

But despite the bail-out plan, the economy is in turmoil and with a recession looming, the economic crisis looks set to stay for some time to come.

For farmers of agricultural land land the combination of a potential recession and the current credit squeeze could provide a number of challenges as well as opportunities.

The most immediate problem facing the agricultural land industry is the availability of credit.

Those most worried are likely to be tenant farmers of agricultural land, but for land owners there is still some hope that credit will remain largely available.

Obviously, if the banks are running out of credit then they will have to start screening loans and some farmers of agricultural land land could end up in the position where they find they can’t get credit.

That is especially true for tenant farmers of agricultural land who don’t have the security of owning their land. Those who own agricultural land and aren’t completely up to their necks in debt will be okay.

Their agricultural land is useful collateral against a loan and with the trend for higher agricultural land prices, that has meant farmers have been given great access to credit from their banks.

Heading for a recession and what it means for agricultural land?

Things could get worse for the economy, and many analysts are now predicting a recession within the next 12 months – but where agricultural land is concerned, the agricultural industry’s economic drivers mean it could be good news for farmers.

Should the UK economy fall behind other EU countries, the effect is likely to be a weaker pound and as farmers calculating their SPS payments for 2008 have already noticed, that is good news for British farmers.

“A weaker pound has generally been good news for the farming sector,” said Ms Suarez.(NFU chief economist) “So it is not just a case of looking at how our economy is doing but how it is doing relative to the rest of the world because that is what drives fluctuations in exchange rates.

Historically, farming has done relatively well during a recession, for example in the 1970s when farmers were not affected like the rest of the economy when we fell into a recession.”

A weaker pound would have two main effects:

Support payments would increase if the pound weakens relative to the euro. This was already seen last week when the EC announced its exchange rates for the 2008 SPS.

The weaker the pound, the more competitive our exports become and the more expensive imports become.

The outlook for agricultural land

The agricultural industry is operating in ‘strange times’ but despite the gloomy economic outlook, the agricultural industry is well placed to ride the immediate storm and boom in the coming years.

One of the great problems is just how long this will last. On the whole the farming industry can look forward to good times. The issue of food inflation is being driven by larger, more affluent populations in developing economies demanding more food – that isn’t going to go away.

If you take away the temporary blips such as the credit crunch, recession, freak weather events and the like, then you can look at farming as very positive for the future.

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